9th Mar 2005 07:12
Balfour Beatty PLC09 March 2005 BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2004 ANOTHER YEAR OF PROGRESS IN BUILDING SHAREHOLDER VALUE Highlights • Double-digit growth in underlying pre-tax profits and earnings per share• Profit progress in all reporting segments• Strong operating cash performance• Order book increased by 17% to £6.8 billion• Five new PPP concession preferred bidder awards• Disposal of Andover Controls for $403 million (£226 million)• Acquisition of 50% interest in Gammon in Hong Kong• Final dividend of 3.75p; full-year dividend up 10% at 6.6p Financial Summary 2004 2003 ChangeTurnover including joint ventures and associates £4,171m £3,678m 13% Pre-tax profit - before goodwill charges and exceptionals £150m £130m 15%- after goodwill charges and exceptionals £257m £118m 118% Earnings per share - adjusted* 23.4p 20.6p 14% - basic 43.8p 16.9p Financing - net cash before PPP subsidiaries £311m £127m +£184m- net borrowings of PPP subsidiaries (non-recourse) £(244)m £(3)m * before goodwill charges, exceptional items and the premium arising on buy-backof preference shares "We made further sound progress in 2004. Once again, we were able to bothimprove our profits and earnings and take important actions in developing theplatform for the Group's future growth. Operating cash flow was, again, strong.We have leading positions in a number of long-term growth markets which continueto offer us encouragement and opportunity. We expect to make further progress in2005 and to maintain our momentum thereafter." Sir David John, Chairman Ian Tyler, Chief Executive BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2004 OVERVIEW Balfour Beatty is a world-class engineering, construction and services group,well positioned in infrastructure markets which offer significant growthpotential. Its partnerships with public and private customers generate secure,long-term income. Its financial strength, with a significant cash position andwith strong operating cash flows, offers continuing flexibility to addadditional capacity and expertise to the business mix and to make appropriateinvestments in PPP concessions and other sustainable growth opportunities. RESULTS Balfour Beatty, the international engineering, construction and services group,today announced pre-tax profits for the 12 months to 31 December 2004 up 15% at£150 million (2003: £130 million) before goodwill charges and exceptionalprofits. Turnover was up 13% at £4,171 million (2003: £3,678 million). Earningsper share before goodwill charges, exceptional items and the premium arising onthe buy-back of preference shares rose by 14% to 23.4p (2003: 20.6p). £35 million was charged to the profit and loss account in respect of goodwillamortisation arising from acquisitions (2003: £17 million), including a £16million impairment charge in respect of Balfour Beatty Rail Inc. There were a number of exceptional items, resulting in a net exceptional pre-taxprofit of £142 million. The sale of Andover Controls of the US, completed inJuly, brought an exceptional profit of £137 million, with a number of otheritems netting to a further £5 million credit (2003: £5 million credit). Profit before tax amounted to £257 million (2003: £118 million). Operating cash flow was, once again, strong and year-end net cash stood at£311 million (2003: £127 million) before taking account of the consolidation of£244 million of non-recourse net debt held in the PPP subsidiaries. The year-end order book increased by 17% to £6.8 billion (2003: £5.8 billion). The Board recommends a final dividend of 3.75p per ordinary share making a totaldividend for the year of 6.6p (2003: 6.0p), an increase of 10%. BUSINESS SECTOR PERFORMANCE Operating profits are stated before goodwill charges and exceptional items In Building, Building Management and Services, operating profits from thecontinuing businesses improved by 14% to £32 million (2003: £28 million).Mansell, which was acquired at the end of 2003, performed ahead of anticipatedlevels and continued to grow, particularly in social housing. Elsewhere in thebuilding sector, performance was satisfactory and order intake continued at verygood levels. A number of substantial contracts and preferred bidder positionswere secured, including a number of major new PPP schools schemes and majoracute healthcare projects. Andover Controls, which was sold in July, madeprofits of £8 million (2003: £17 million) and is accounted for as a discontinuedbusiness. In Civil and Specialist Engineering and Services, operating profits improved by10% to £23 million (2003: £21 million). Performance in the UK was good.Particularly encouraging progress was made in utilities contracting, where majornew projects have been secured in both the gas and water sectors. Performancealso improved significantly in road management and maintenance. In the US,however, further substantial losses were incurred. Our US business has now beenreorganised and the heavy marine engineering business is being closed. Theassociated costs of these actions have been fully accounted for in 2004. Theacquisition of 50% of Gammon in Hong Kong and the accelerating development ofthe Dubai market, where we have a strong presence, provide further opportunitiesfor long-term future growth. In Rail Engineering and Services, operating profits rose by 5% to £43 million(2003: £41 million). The maintenance contracts taken in-house by Network Railwere settled on satisfactory terms. Our UK projects, plant and track systemsbusinesses also performed well. A significantly larger share of the main linerenewals programme was secured early in the year and the renewals workload forthe London Underground is now increasing sharply. There were losses in BalfourBeatty Rail Inc in the US. The business has been reorganised and downsized as aresult and its carrying value has been reduced by £16 million. There was alsosome weakness in the German market, which led to reorganisation costs, but majorprojects in Italy, Portugal and the rest of the world progressed well. In Investments and Developments, operating profits improved by 24% to£67 million (2003: £54 million) and pre-tax profits by 58% to £41 million (2003:£26 million). Progress was very satisfactory, largely as a result of theacquisition of 100% ownership of the Connect Roads A30/A35, A50 and M77/GSOconcessions, a first full year of Metronet profits and a strong recovery inprofits in Barking Power. In this latter context, a first dividend in respect ofthe administration of TXU Europe is anticipated during 2005. Preferred bidderstatus was achieved for five new PPP schemes - hospitals at Birmingham andPinderfields in Yorkshire through Consort Healthcare, and schools schemes atNorth Lanarkshire, Nottinghamshire and Birmingham through Transform Schools. CHIEF EXECUTIVE'S REVIEW Order Book "Our main markets, in healthcare, education, road and rail, and utilities, weregenerally buoyant in 2004. We were very successful in winning new work and ourorder book grew to £6.8 billion - a new record - with a further £1.0 billion atpreferred bidder stage at the year end. Reliable earnings growth is underpinned by long-term alliance contracts. Wealready have many such contracts and have won more in 2004, including a £400million, five year project to manage and maintain motorways and trunk roads insouth-west England and a five-year contract likely to be worth approximately£500 million for rail renewals on the main line network. Early in 2005, wesecured a £380 million contract to work with National Grid Transco in replacingthe gas mains in Greater Manchester over the next eight years. We are strong in services, but the majority of our activity remains inengineering and construction. During the year, for example, we were selected tobuild the world's largest shopping mall in Dubai and the new 1,230-bedBirmingham Hospital and to manage and execute more than £400 million of work atHeathrow Terminal 5. We are a market leader in public private partnerships. During the year, we wereappointed preferred bidder on five new concessions, with a total capital valueof over £1 billion. When these schemes reach financial close, very substantialconstruction and long-term service contracts will fall to Balfour Beattycompanies. Disposals and Acquisitions The sale of Andover Controls realised a net cash inflow of £218 million. Andoveris a US building management systems specialist - a business quite unlikeanything else in the Group. To sustain Andover's position in its markets wouldhave required heavy expenditure on research and new product development. Anumber of companies whose principal business makes such investments appropriatewanted to buy Andover. As the company was becoming increasingly vulnerable toits competition, we decided to sell. We were paid a good price and this hasreleased funds to invest in our core businesses. We continued to generate cash in line with our profits and to manage workingcapital carefully. Our overall year-end net cash position (excluding PFI/PPPnon-recourse net debt) was £311 million, after spending a net £56 million onacquisitions. The year's major acquisition was a 50% interest in Gammon, the leadingconstruction company in Hong Kong, for a consideration of £33 million. Inaddition to giving us pole position in an important local market, this creates astrong base from which to grow more generally in Asia. We also acquired the minority in Connect to give us 100% ownership of thisprofitable portfolio of road concessions, added to our rail signalling expertiseand strengthened our US project and programme management company. We will continue to acquire in areas where the acquisition adds value. We willalso continue to take equity stakes in PPP concessions where we are confident wecan make good returns. US We had a difficult year in the US, resulting in substantial losses, as indicatedin the geographic analysis. We have, however, now made good progress in getting our interests there into theright shape to generate the consistent and growing earnings profile which is thehallmark of our businesses elsewhere. We now have a sound organisation structure and sensible business models in eachof our US markets. We have three strong regional civil engineering businesses inCalifornia, Texas and Pennsylvania, a rail transit and services operation and,in Heery, a well-established specialist in architecture, engineering andprogramme management. Our primary objective is to deliver significant performance improvement in 2005and 2006, on which basis we can build a larger presence in the longer term. Strategy Our success in growing our underlying profits and earnings in recent years hasbeen based on organic growth, and on creating and investing in businesses whichhave superior growth characteristics. We have created a strong concession base in the private finance sector wheregood growth is built in to the concessions over their term. We have extended ourlife cycle presence in roads, rail, utilities and buildings so that we haveearnings streams emanating from across the value chain from concept and designthrough to whole-life management and maintenance. In addition to the disposal ofAndover, we have also sold businesses overseas where prospects of growth arepoor in favour of a more substantial presence in a few growth markets. During this period, procurement methods, particularly in the UK, have movedtowards a greater emphasis on design and build, private finance, bundling ofconstruction work into larger packages and outsourcing - all trends which eitherplay to Balfour Beatty's existing strengths or into which we have movedsuccessfully, for example through the acquisition of our gas and water utilitiesbusiness. To continue to meet our growth objectives, we will be looking to add further newelements to the business mix. Having the cash to invest and acquire gives usflexibility in maintaining our forward momentum. Safety The construction environment is, by its nature, hazardous and we regard it as apriority to keep our employees and the public safe. It is therefore important tomaintain our momentum in improving our safety systems and performance. Followingthe 17% improvement in our accident rate in 2003, it is gratifying to be able toreport a further 20% reduction in 2004. Our accident frequency rate is significantly better than Health and SafetyExecutive norms, but this breeds no complacency. New targets have been set forfurther improvement this year. We have introduced an IT system which provides asingle worldwide safety, environmental and health reporting and tracking system.This enables us to benchmark performance, identify trends and developappropriate action plans. Social Responsibilities The Group is committed to fulfilling its responsibilities to all of itsstakeholders, including the wider communities in which it operates. In respect of the environment, we measure our key impacts, work with ourstakeholders to minimise any potentially negative outcomes and actively promotesustainable projects and processes both within the Group and with our customers. We are making good progress in a number of areas in respect of our socialresponsibilities. For example, a new charities policy has both increased thequantum of our corporate donations and focussed them more clearly on causeswhere we can most make a difference. We have contributed equipment, staff timeand expertise as well as money to the current tsunami relief effort inIndonesia, where we have a joint venture company. International Financial Reporting Standards Balfour Beatty will be required to prepare its 2005 interim and annual financialstatements under International Financial Reporting Standards (IFRS). We continueto monitor the development of those standards yet to be finalised, particularlyin the area of accounting for PFI/PPP concessions. The principal impacts of the adoption of IFRS on the Group's financialstatements will arise from the reclassification of the Group's preference sharesas debt, the treatment of our IAS 19 pension deficit as a balance sheet item andthe replacement of goodwill amortisation by annual reviews for impairment. In June 2005, we plan to publish a restatement of the 2004 financial statementsin accordance with IFRS. OUTLOOK We have leading positions in a number of long-term growth markets which continueto offer us encouragement and opportunity. We anticipate further improvement in the Building sector as the construction ofour significant portfolio of major PPP projects proceeds and the market forsocial housing continues to develop. In Engineering, our expectations of asignificantly better performance in the US should, amongst other factors, leadto good progress. In Rail, lower UK activity levels following the loss of themaintenance contracts and some continuing weakness in Germany will impactresults. In Investments, there was a major step forward in 2004. This segmentwill see more modest growth in 2005 as substantial new PPP projects reachfinancial close and are mobilised. Overall, we expect to make further progress in 2005 and to maintain our momentumthereafter. Enquiries to:-Ian Tyler, Chief ExecutiveAnthony Rabin, Finance DirectorTim Sharp, Director of Corporate Communications Tel: 020 7216 6800www.balfourbeatty.com ******** High resolution photographs are available to the media free of charge atwww.newscast.co.uk (+44 (0) 20 7608 1000) GROUP PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2004 Notes Before Exceptional Total Before Exceptional Total exceptional items exceptional items 2003 items (Note 3) items (Note 3) as 2004 2004 2004 2003 2003 restated £m £m £m £m £m £mTURNOVER INCLUDING SHARE OFJOINT VENTURES AND ASSOCIATES 2 4,171 - 4,171 3,678 - 3,678Share of turnover ofjoint ventures 9 (380) - (380) (297) - (297)Share of turnover ofassociates 9 (292) - (292) (220) - (220) ------- --------- ------- ------- -------- -------GROUP TURNOVER 3,499 - 3,499 3,161 - 3,161 ======= ========= ======= ======= ======== ======= +---------------------------------------------------------------+Continuing operations | 3,432 - 3,432 3,058 - 3,058 |Acquisitions 12 | 16 - 16 - - - |Discontinued operations | 51 - 51 103 - 103 | +---------------------------------------------------------------+ GROUP OPERATING PROFIT 67 7 74 68 3 71Share of operating profit ofjoint ventures 9 27 - 27 47 - 47Share of operating profit ofassociates 9 44 - 44 29 - 29 ------- --------- ------- ------- -------- -------OPERATING PROFIT INCLUDING SHAREOF JOINT VENTURES AND ASSOCIATES 2 138 7 145 144 3 147 +---------------------------------------------------------------+Operating profit before goodwill | |amortisation | 173 7 180 161 3 164 |Goodwill amortisation and | |impairment 8 | (35) - (35) (17) - (17)| +---------------------------------------------------------------+ +---------------------------------------------------------------+Continuing operations | 121 7 128 128 3 131 |Acquisitions 12 | 9 - 9 - - - |Discontinued operations | 8 - 8 16 - 16 | +---------------------------------------------------------------+ Profit on sale of operations 135 135 - -Provision for loss on sale ofoperations 2 2 (10) (10)(Loss) / profit on sale oftangible fixed assets (2) (2) 12 12 ------- --------- ------- ------- -------- -------PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 138 142 280 144 5 149Net interest payable andsimilar charges:Group 4 - - - (1) - (1)Share of joint ventures'interest 4 (9) - (9) (18) - (18)Share of associates' interest 4 (14) - (14) (12) - (12) ------- --------- ------- ------- -------- -------PROFIT ON ORDINARY ACTIVITIESBEFORE TAXATION 115 142 257 113 5 118 +---------------------------------------------------------------+Profit on ordinary activities | |before goodwill amortisation | 150 142 292 130 5 135 |and taxation | |Goodwill amortisation and | |impairment | (35) - (35) (17) - (17)| +---------------------------------------------------------------+Tax on profit on ordinaryactivities 5 (39) (15) (54) (30) 1 (29) ------- --------- ------- ------- -------- ------- PROFIT FOR THE FINANCIAL YEAR 76 127 203 83 6 89 Dividends:Preference 6 (13) (15)Ordinary 6 (28) (25)Premium paid on buy-back of preference shares (6) (5) ------- -------TRANSFER TO RESERVES 156 44 ======= ======= ADJUSTED EARNINGS PER ORDINARYSHARE 7 23.4 p 20.6 pGoodwill amortisation andimpairment (8.3)p (4.1)pExceptional items afterattributable taxation 30.2 p 1.4 pPremium paid on buy-back of (1.5)p (1.0)ppreference shares -------- -------BASIC EARNINGS PER ORDINARYSHARE 7 43.8 p 16.9 p ======== =======DILUTED EARNINGS PER ORDINARYSHARE 7 43.4 p 16.7 p ======== =======DIVIDENDS PER ORDINARY SHARE 6 6.6 p 6.0 p ======== ======= GROUP BALANCE SHEET Notes 2004 2003At 31 December 2004 as restated £m £mFIXED ASSETSIntangible assets - goodwill 8 265 306Tangible assets - PFI/PPP constructed assets 288 - - other 149 158Investments 42 36Investments in joint ventures: +------------------+Share of gross assets | 815 866 |Share of gross liabilities | (715) (777)| +------------------+ 9 100 89Investments in associates 9 81 47 ------- ------- 925 636 ------- -------CURRENT ASSETSStocks 102 109Debtors - due within one year 738 759 - due after one year 79 60Cash and deposits - PFI/PPP subsidiaries 30 - - other 388 202 ------- ------- 1,337 1,130CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEARBorrowings - PFI/PPP non-recourse term loans (13) - - other (15) (7)Other creditors (1,209) (1,195) ------- -------NET CURRENT ASSETS / (LIABILITIES) 100 (72) ------- ------- TOTAL ASSETS LESS CURRENT LIABILITIES 1,025 564 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEARBorrowings - PFI/PPP non-recourse term loans (261) (3) - other (62) (68)Other creditors (110) (95)PROVISIONS FOR LIABILITIES AND CHARGES (179) (167) ------- ------- 413 231 ======= ======= CAPITAL AND RESERVESCalled-up share capital 213 212Share premium account 150 328Revaluation reserves 70 48Special reserve 181 -Other reserves 4 8Profit and loss account (205) (365) ------- -------SHAREHOLDERS' FUNDS 10 413 231 +------------------+Equity interests | 277 81 |Non-equity interests | 136 150 | +------------------+ ------- ------- 413 231 ======= ======= GROUP CASH FLOW STATEMENT Notes 2004 2003For the year ended 31 December 2004 as restated £m £m NET CASH INFLOW FROM OPERATING ACTIVITIES 11(a) 171 170 ------- -------DIVIDENDS FROM JOINT VENTURES AND ASSOCIATES 8 11 ------- -------RETURNS ON INVESTMENTS AND SERVICING OF FINANCEInterest received 18 9Interest paid (24) (10)Preference dividends paid (15) (15) ------- -------NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (21) (16) ------- ------- UK corporation tax paid (25) (19)Foreign tax paid (16) (6) ------- -------TAXATION (41) (25) ------- -------CAPITAL EXPENDITURE AND FINANCIAL INVESTMENTCapital expenditure (110) (51)Disposal of tangible fixed assets 13 24Investment in joint ventures and associates (11) (6)Other investments 51 (6) ------- -------NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (57) (39) ------- -------ACQUISITIONS AND DISPOSALSAcquisitions of businesses 11(e) (56) (21)Disposals of businesses 11(f) 217 - ------- -------NET CASH INFLOW/(OUTFLOW) FROM ACQUISITIONS AND DISPOSALS 161 (21) ------- ------- ORDINARY DIVIDENDS PAID (25) (22) ------- ------- CASH INFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING 196 58 MANAGEMENT OF LIQUID RESOURCESIncrease in term deposits 11(b) (206) (32) ------- -------NET CASH OUTFLOW FROM MANAGEMENT OF LIQUID RESOURCES (206) (32) ------- ------- FINANCINGOrdinary shares issued 4 5Purchase of ordinary shares (2) (1)Buy-back of preference shares (20) (16)New loans 6 3Repayment of loans (12) (11)Capital element of finance lease payments (2) (3) ------- -------NET CASH OUTFLOW FROM FINANCING (26) (23) ------- -------(DECREASE) / INCREASE IN CASH IN THE PERIOD 11(c) (36) 3 ======= ======= GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003For the year ended 31 December 2004 as restated £m £mProfit for the financial year:GroupGroup operating profit 74 71Profit on sale of operations 135 -Provision for loss on sale of operations 2 (10)(Loss) / profit on sale of tangible fixed assets (2) 12Net interest payable and similar charges - (1)Tax on profit on ordinary activities (36) (14) ------- ------- 173 58Share of joint ventures (see Note 9) 10 19Share of associates (see Note 9) 20 12Exchange adjustments (2) (1) ------- -------TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR 201 88 ======= ======= NOTES 1. BASIS OF PRESENTATION The accounts have been prepared under the historical cost convention, modified for therevaluation of certain land and buildings, using accounting policies which have beenapplied consistently throughout the year and the preceding year and comply with allapplicable accounting standards and the Companies Act 1985. The Group has adopted UITF Abstract 38 "Accounting for ESOP trusts" and the amendments toUITF Abstract 17 "Employee share schemes" and comparative figures have been restatedaccordingly. Previously, investments in Balfour Beatty plc ordinary shares of 50p eachacquired by the Group's discretionary Trust, the Balfour Beatty Employee Share OwnershipTrust, to satisfy awards under the Balfour Beatty Performance Share Plan, were recognisedas a fixed asset investment, net of provisions. The cost of shares acquired was charged tothe profit and loss account over the qualifying period. In accordance with UITF 38 andUITF 17, own shares held by the Group's discretionary trust are recorded as a deduction inarriving at shareholders' funds and the fair value of the shares at the date of award ischarged to the profit and loss account over the qualifying period. In addition, purchasesof shares which were previously shown in the cash flow statement within capitalexpenditure and financial investment, are now disclosed within the financing section. Thisrestatement has had no impact on operating profit in 2003. Shareholders' funds as at 31December 2003 were increased by £1.3m. The Group has also adopted UITF Abstract 37"Purchases and sales of own shares" and comparative figures have been restatedaccordingly, reducing basic earnings per ordinary share in 2003 by 1.0p. The differencebetween the carrying amount of preference shares bought back and the consideration paidhas been reported as an appropriation of profit. 2. SEGMENT ANALYSISa) Total Group, including share of joint ventures and associates Turnover Operating profit Capital employed before exceptional items 2004 2003 2004 2003 2004 2003 as as restated restated £m £m £m £m £m £mPERFORMANCE BY ACTIVITYBuilding, building managementand services 1,586 1,093 32 28 (154) (153)Civil and specialistengineering and services 1,443 1,393 23 21 (45) (44)Rail engineering and services 803 873 43 41 (57) (51)Investments and developments 288 216 67 54 353 56 ------- --------- ------- ------- -------- ------- 4,120 3,575 165 144 97 (192)Discontinued operations 51 103 8 17 - 21 ------- --------- ------- ------- -------- ------- 4,171 3,678 173 161 97 (171) ======= =========Goodwill amortisation and impairment (35) (17) ------- -------Operating profit 138 144Net interest payable (23) (31) ------- -------Profit before tax and exceptional items 115 113 ======= =======Net cash 67 124Goodwill (including share of joint ventures and associates) 295 318Tax and dividends (46) (40) -------- ------- 413 231 ======== =======PERFORMANCE BY GEOGRAPHIC ORIGINEurope 3,591 3,127 204 170 70 (221)North America 415 483 (35) (12) 8 41Other 165 68 4 3 19 9 ------- --------- ------- ------- -------- ------- 4,171 3,678 173 161 97 (171) ======= ========= ======= ======= ======== ======= Andover Controls sold in July 2004 has been classified as discontinued. Goodwillamortisation arises in Building, building management and services £4.3m (2003: £1.2m), Civiland specialist engineering and services £5.0m (2003: £5.5m), Rail engineering and services£24.6m (2003:£9.0m), Investments and developments £0.3m (2003: nil) and Discontinuedoperations £0.7m (2003: £1.6m). In 2004, goodwill amortisation includes £15.9m impairmentcharge in respect of Balfour Beatty Rail Inc. In 2003, goodwill amortisation included £0.5mimpairment charge in respect of Garanti Balfour Beatty. Goodwill arises in Building,building management and services £64m (2003: £62m), Civil and specialist engineering andservices £95m (2003: £80m), Rail engineering and services £131m (2003: £152m), Investmentsand developments £5m (2003:£1m) and Discontinued operations nil (2003: £23m). Goodwill amortisation arises in Europe £14.8m (2003: £12.3m), North America £19.4m (2003:£4.7m) and Other £0.7m (2003: £0.3m). Goodwill arises in Europe £240m (2003: £242m), NorthAmerica £31m (2003: £72m) and Other £24m (2003: £4m). b) PFI/PPP subsidiariesThe Group has a 100% interest in four PFI/PPP concessions through itsshareholdings in Connnect Roads Ltd, Connect M77/GSO Holdings Ltd and ConnectRoads Sunderland Holdings Ltd. The performance of these PFI/PPP concessions(since becoming subsidiaries as appropriate) and their balance sheets aresummarised below: 2004 2003 £m £mPROFIT AND LOSS ACCOUNTTurnover 36 - ------- -------Operating profit 21 -Net interest payable (12) - ------- -------Profit on ordinary activities before taxation 9 -Tax on profit on ordinary activities (2) - ------- -------Profit for the period 7 - ------- -------CASH FLOWOperating profit 21 -Depreciation 9 -Working capital decrease / (increase) 1 (3) ------- -------Net cash inflow from operating activities 31 (3)Returns on investments and servicing of finance (20) -Taxation (4) -Capital expenditure and financial investment (2) -Dividends paid (9) - ------- -------Cash outflow before use of liquid resources and financing (4) (3)Opening net borrowings / net borrowings at date of acquisition (240) - ------- -------Closing net borrowings (244) (3) ------- -------BALANCE SHEETTangible fixed assets 288 -Debtors 25 3Creditors and provisions (36) -Tax and dividends (10) -Cash and deposits 30 -Project finance non-recourse term loans (274) (3) ------- -------Net assets 23 - ------- ------- 3. EXCEPTIONAL ITEMS 2004 2003 £m £ma) CREDITED TO / (CHARGED AGAINST) OPERATING PROFITCompensation for loss of use of operating facility - 10Cancellation of Network Rail maintenance contracts 7 (7) ------- ------ 7 3 ------- ------b) PROFIT / (LOSS) ON SALE OF OPERATIONSProfit on disposal of Andover Controls 137 -Loss on disposal of Garanti Balfour Beatty (2) -Loss on disposal of First Philippine Balfour Beatty Inc (1) -Profit on sale of Hong Kong business 1 - ------- ------ 135 - ------- ------c) PROVISION FOR LOSS ON SALE OF OPERATIONSLosses arising from the disposal of the discontinued Cables businesses - (8)Provision for loss on disposal of Garanti Balfour Beatty 2 (2) ------- ------ 2 (10) ------- ------d) (LOSS) / PROFIT ON SALE OF TANGIBLE FIXED ASSETSLoss on sale of fixed assets (2) -Profit on sale of operating facility - 12 ------- ------ (2) 12 ------- ------ 142 5 ======= ====== a) The exceptional item credited to group operating profit in 2004 arises in respect of theresolution of certain matters previously provided for in 2003 in relation to thecancellation of three Network Rail maintenance contracts. Exceptional items charged againstGroup operating profit in 2003 also included compensation received in respect of businessdisruption, following the compulsory purchase of an operating facility. These exceptionalitems related to the Rail engineering and services segment and arose in Europe. b) In 2004 a profit of £137m (after charging goodwill previously written off to reserves of£37m) arose on the disposal of Andover Controls for a consideration of US$403m. In 2004, a loss of £2m (previously provided in 2003) arose on the disposal of the Group's49.2% interest in Garanti Balfour Beatty Sanayi ve Ticaret AS for a consideration of US$1;a loss of £1m (comprising goodwill previously written off to reserves) arose on thedisposal of the Group's 40% interest in First Philippine Balfour Beatty Inc for aconsideration of US$3.5m; a profit of £1m arose on the transfer of the Group's constructioncontracts in progress in Hong Kong to the Gammon Skanska Group following the acquisition ofa 50% interest in that business (see Note 12). These exceptional items arose in the Civiland specialist engineering and services segment. c) The provision for loss on sale of operations in 2003 comprised provision forenvironmental and employee retirement costs relating to the discontinued Cables businessesin North America sold in 1999 and provision for losses on the disposal in 2004 of theGroup's 49.2% interest in Garanti Balfour Beatty in Turkey in the Civil and specialistengineering and services segment. d) In 2004, a net loss of £2m arose on the sale of fixed assets which comprises £2m profiton the sale of properties and plant in the UK and £4m loss on the disposal of specialistplant in the US heavy marine civil engineering business. The net loss arose in theBuilding, building management and services segment £1m profit, Rail engineering andservices £1m profit and Civil and specialist engineering and services £4m loss. The profiton sale of fixed assets in 2003 arose on the compulsory purchase of an operating facility.This profit related to the Rail engineering and services segment and arose in Europe. e) Exceptional items increased the Group's tax charge in 2004 by £15m (2003: £1m reduction). 4. NET INTEREST PAYABLE AND SIMILAR CHARGES 2004 2003 £m £m GroupPFI/PPP non-recourse - other net interest payable 13 - - interest on long-term finance assets (1) - ------- ------ 12 -Other net interest payable - bank loans and overdrafts 2 2 - finance leases 1 1 - other loans 7 9PFI/PPP subordinated debt interest receivable (9) (2)Other interest receivable and similar income (13) (9) ------- ------ - 1Share of joint venturesPFI/PPP concessions - other net interest payable 27 36 - interest on long-term finance assets (18) (18)Share of associatesPFI/PPP concessions - other net interest payable 9 7Other associates - other net interest payable 5 5 ------- ------ 23 31 ======= ====== 5. TAX ON PROFIT ON ORDINARY ACTIVITIESa) Taxation charge 2004 2003 £m £mUK CURRENT TAXCorporation tax for the period at 30% (2003: 30%) 37 31Double tax relief (2) (2)Adjustments in respect of previous periods (8) (4) ------- ------ 27 25 ------- ------UK ADVANCE CORPORATION TAXWritten back against current year UK tax (11) (8)Adjustments in respect of other periods (6) (5) ------- ------ (17) (13) ------- ------FOREIGN CURRENT TAXForeign tax on profits of the period 18 5Adjustments in respect of previous periods (1) 2 ------- ------ 17 7 ------- ------Total current tax 27 19 ------- ------DEFERRED TAXUK 4 (5)Adjustments in respect of previous periods 5 - ------- ------Total deferred tax 9 (5) ------- ------JOINT VENTURES AND ASSOCIATESShare of UK joint ventures' tax 7 10Share of UK associates' tax 10 5Share of foreign joint ventures' tax 1 - ------- ------Total joint ventures' and associates' tax 18 15 ------- ------Taxation charge 54 29 ======= ====== b) Factors that may affect future tax chargesThe Group has benefited from overseas tax losses in 2004. These losses have resulted inreduced tax payments in recent years and the Group expects to continue to benefit in 2005.The unrecognised deferred tax asset in respect of losses that arose over a number of yearsin the USA and Germany is estimated to be £65m (2003: £100m). In 2004, the Group has recognised £17m of surplus advance corporation tax, of which £8m isrecoverable against future periods. The tax rate in future periods is expected to be higherfollowing the recognition of this amount. 6. DIVIDENDS Per Amount Per Amount share share 2004 2004 2003 2003 pence £m pence £mOn preference shares:Paid 4.8375 7 4.8375 7Payable 4.8375 6 4.8375 8 -------- ------- -------- ------- 9.6750 13 9.6750 15On ordinary shares:Interim payable 2.85 12 2.60 11Final proposed 3.75 16 3.40 14 -------- ------- -------- ------- 6.60 28 6.00 25 ======== ======= ======== ======= An interim dividend of 2.85p (2003: 2.60p) per ordinary share was paid on 4 January 2005.Subject to approval at the Annual General Meeting on 12 May 2005, the final dividend of3.75p (2003: 3.40p) per ordinary share will be paid on 1 July 2005 to ordinary shareholderson the register on 29 April 2005 by direct credit or, where no mandate, by cheques posted on29 June 2005 payable on 1 July 2005. These shares will be quoted ex-dividend on 27 April 2005. A preference dividend of 5.375p gross (4.8375p net) per preference share will be paid inrespect of the six months ending 30 June 2005 on 1 July 2005 to preference shareholders onthe register on 27 May 2005 by direct credit or, where no mandate, by cheques posted on 29June 2005 payable on 1 July 2005. These shares will be quoted ex-dividend on 25 May 2005. 7. EARNINGS PER ORDINARY SHARE The calculation of earnings per ordinary share is based on the profit for the financialyear, after charging preference dividends and appropriations arising on the buy-back ofpreference shares, divided by the weighted average number of ordinary shares in issueduring the year of 419.4m (2003:416.3m). The calculation of diluted earnings per ordinary share is based on the profit for thefinancial year, after charging preference dividends and appropriations arising on thebuy-back of preference shares, divided by the weighted average number of ordinary sharesin issue adjusted for the potential conversion of share options by 4m (2003: 3m). As in2003, no adjustment has been made in respect of the potential conversion of the cumulativeconvertible redeemable preference shares, the effect of which would have been antidilutivethroughout the year.Related Shares:
Balfour Beatty