7th Mar 2007 07:00
Balfour Beatty PLC07 March 2007 BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2006 ANOTHER YEAR OF PROGRESS IN BUILDING SHAREHOLDER VALUE Financial Summary +----------------------------------------------------------------------+| | 2006 | 2005 ||------------------------------------------------|----------|----------||Revenue including joint ventures and associates | £5,852m | £4,938m ||------------------------------------------------|----------|----------||Pre-tax profit | | ||------------------------------------------------|----------|----------||- before exceptional items and amortisation | £152m | £134m ||------------------------------------------------|----------|----------||- after exceptional items and amortisation | £125m | £141m ||------------------------------------------------|----------|----------||Earnings per share | | ||------------------------------------------------|----------|----------||- adjusted* | 27.3p | 24.1p ||------------------------------------------------|----------|----------||- basic | 21.2p | 24.9p ||------------------------------------------------|----------|----------||Financing | | ||------------------------------------------------|----------|----------||- net cash before PFI/PPP subsidiaries | £305m | £315m || (non-recourse) | | ||------------------------------------------------|----------|----------||- net borrowings of PFI/PPP subsidiaries | £(21)m| £(14)m|| (non-recourse) | | |+----------------------------------------------------------------------+* before exceptional items and amortisation of intangible assets Highlights - Pre-tax profit* up by 13% to £152 million - Adjusted earnings per share* up by 13% to 27.3p - Cash generated from operations up 30% at £217 million - Order book increased by 20% to £9.1 billion - Good progress in strategic acquisition and investment programme - Agreement to acquire Centex Construction in the US - Final dividend of 5.2p, full-year dividend up 12% at 9.1p "We have record order books, a number of preferred bidder positions on majorprojects and our markets are generally healthy and continue to offer substantialopportunity. We have also made good progress in pursuing the strategicpriorities which we set out last year and have substantially added to ourearning power as a result, which will serve to underpin future growth. Webelieve that we will be able to make further good progress in 2007." Sir David John, Chairman Ian Tyler, Chief Executive BALFOUR BEATTY PLC PRELIMINARY RESULTS FOR THE YEAR TO 31 DECEMBER 2006 RESULTS Balfour Beatty, the international engineering, construction, services andinvestment group, today announced pre-tax profits before exceptional items andamortisation of intangible assets for the 12 months to 31 December 2006 up 13%at £152 million (2005: £134 million). Adjusted earnings per ordinary sharebefore exceptional items and amortisation were also up 13% at 27.3p (2005:24.1p). Basic earnings per share stood at 21.2p (2005: 24.9p). The Board recommends a final dividend of 5.2p per ordinary share, making a totaldividend for the year of 9.1p (2005: 8.1p), an increase of 12%. There were a number of exceptional items, the largest of which was a non-cashasset write-down taken at the half-year, resulting in a net exceptional chargeafter tax of £25 million (2005: £4m profit). Pre-tax profit for the year (after exceptional items and amortisation ofintangible assets) amounted to £125 million (2005: £141 million). Operating cash flow was, once again, strong and in line with profits. Year-endnet cash stood at £305 million (2005: £315 million), despite acquisitionexpenditure of £80 million, and before taking account of the consolidation of£21 million non-recourse net debt held in PPP subsidiaries (2005: £14 million). The year-end order book increased by 20% to £9.1 billion (2005: £7.6 billion),with over £1.0 billion of further work at preferred bidder stage. OVERVIEW It is pleasing to report another year of strong profit and earnings growth andof good progress in pursuing the strategic priorities which we set out lastyear, while maintaining the strength of our cash position. We remain committed to the delivery of the reliable, responsible growth whichour shareholders have enjoyed over recent years. We are very clear about what isneeded to continue growing the business for the long term and have the provenmanagement capability to deliver. BUSINESS SECTOR PERFORMANCE Building, Building Management and Services Profit from operations before exceptional items and amortisation of intangibleassets in the building sector improved by 23% to £43 million (2005: £35million). This represented a good all round performance in strong markets. Therewas particularly good progress achieved in UK building construction and a firstcontribution from Charter in the US, offset by the impact of some issues relatedto the delivery programme under the London Underground PPP, which also had aneffect in the engineering sector. The sector order book increased by 50% to £3.6 billion. Major hospital schemesin Birmingham and Glasgow commenced, as did work on the Birmingham Schoolscontract. Haden Building Management secured over £750 million of facilitiesmanagement work, including major long-term contracts for the Department for Workand Pensions and the Metropolitan Police Authority. The social housing marketcontinued to grow strongly. The acquisition of Centex Construction, a leading USbuilder, was agreed in February 2007. With order books continuing to grow, we expect very good progress in this sectorin 2007, accelerated by the additional benefit of the acquisition of Centex. Civil and Specialist Engineering and Services Profit from operations before exceptional items and amortisation of intangibleassets in the engineering sector increased by 12% to £55 million (2005:£49 million). This reflected a good all round UK performance, with strong growthfrom Balfour Beatty Utilities and Balfour Beatty Management. Outside the UK,there were improved performances from our businesses in Hong Kong and Dubai. Inthe US, although underlying performance improved, there were some further lossesin the central division, which is in the process of closure. The sector order book increased by 12% to £4.5 billion. This reflected a majorlong-term contract win in utilities contracting for Northern Gas Networks, fournew contract awards in road management and maintenance, the award of theNorthern Ticket Hall contract at King's Cross St Pancras Underground Station,and the acquisition of Birse in July. Early in 2007, we signed the £550 millionEastern overhead line and cable alliance with National Grid. Our engineering markets, particularly in the UK, Dubai and Singapore, remainstrong and, with further recovery in the US, we expect to make substantialprogress in this sector in 2007. Rail Engineering and Services Profit from operations before exceptional items in the rail sector rose by 19%to £38 million (2005: £32 million). This reflected an excellent recovery in thesecond half of the year, with good settlements on projects in the UK, Europe andAsia and steady progress on major works, including those for Metronet and BAA. The sector order book declined by 17% to £1.0 billion during the year as anumber of major projects were completed. The £363 million contract for theupgrade and extension of the East London Line was secured late in the year.Notable on-time, on-budget completions included the complex Waterloo and CityLine project on the London Underground, the technical works in the BerlinTunnel, the new Malpensa to Turin line in Italy, and the multi-disciplinaryIngolstadt to Nuremberg project in Germany. We do not expect an upturn in overall spending in our major markets in the shortterm. However, steady growth in the world rail infrastructure market ispredicted for the longer term. Investments and Developments Profit from operations before exceptional items in the investments sectorimproved by 60% to £32 million (2005: £20 million). This reflected significantlybetter profits in Barking Power, good performance in mature concessions, areclassification of Connect Roads from subsidiary to joint venture and anincreased shareholding in Consort Edinburgh. Performance of the Metronetconcessions was less satisfactory as a result of the complexity of the deliveryissues, which are the subject of close attention. During the year, two projects were converted from preferred bidder to contract.These were the £553 million Birmingham Hospital scheme and the £89 millionBirmingham Schools scheme. Preferred bidder status was achieved for the KnowsleyBuilding Schools for the Future scheme, the Derby street lighting scheme and, inJanuary 2007, for the Fife Hospital scheme in Scotland. Also in January, as a first step in its diversification into non PPPinvestments, Balfour Beatty Capital acquired Exeter International Airport for£60 million. During the year, Balfour Beatty Capital offices were established inthe US, Germany and Singapore. Preliminary bids have been submitted in each ofthese markets. Balfour Beatty Capital now has 27 concessions, including six at preferred bidderstage, involving £341 million of committed equity. In 2007, profits will be impacted both by significantly increased bid costs andoverheads as we grow the business overseas and the performance of Metronet wherefurther action is being taken to secure the long-term success of theconcessions. We anticipate that the financial performance of our healthcare, education, roadand general infrastructure concessions will continue to meet or exceedexpectations and that our preferred bidder projects and a strong bid pipelinewill see our portfolio continue to grow. We will also continue to increase ourpresence in overseas PPP markets. EXCEPTIONAL ITEMS There was a net exceptional charge of £25 million post tax. In the first half ofthe year, a £16 million goodwill write-down was taken on the carrying value ofthe central division of our US civil engineering business, which arose from theacquisition in 2001 of National Engineering and Contracting, with someconsequent restructuring costs. There were also exceptional integration costsarising from the acquisition of the Birse Group in July. As in previous years, there was a premium paid on the buy-back of preferenceshares, amounting to £7 million in 2006. These items were partly offset by acredit arising from a reduction in the fine levied in respect of the Hatfieldrail accident in 2000. STRATEGIC PROGRESS The Group's growth over the next two to three years is implicit in its existingbusiness mix and is underpinned by the order books and market positions of itsoperating companies. In order to continue our long-term record of double-digitprofit and earnings growth, we have identified four areas for expansion andinvestment. UK Infrastructure The majority of the businesses in which we make our best and most reliablemargins are in UK infrastructure markets, many of which have strong positivegrowth momentum, including major public building, social housing, utilitiescontracting and regional civil engineering. Last year, we announced ourintention to add to our presence in these markets. In July, we completed the acquisition of Birse Group plc, a leading UK regionalcivil engineering business, for a cash consideration of £32 million. Birse hasannual revenues of over £300 million and a strong presence in regional marketswhich is complementary to that of Balfour Beatty Civil Engineering. It also addsnew disciplinary capabilities in the coastal and rail sectors and processexpertise in water, power and the nuclear sector. Other opportunities are underreview. Professional and Technical Services There is a clear trend amongst our key customers to demand a broader and moreproactive role from us in addition to that represented by our long-establishedconstruction and maintenance services. During 2006, we have made good progress in the further development of ourprofessional and technical services capability through the growth of BalfourBeatty Management which was formed in 2003. This group, which now employsapproximately 350 professionals, has played a key role in securing majorlong-term contracts for National Grid and United Utilities and, most recently,has led a major bid to become partner for complex building integration for BAA's10-year airport investment plan. Balfour Beatty Management's work on the King's Cross St Pancras UndergroundStation development has reduced overall project costs by over £170 million. Thebusiness will continue to grow, including, possibly, through acquisition. Private Finance Our UK PPP business, Balfour Beatty Capital, has substantial skills and in-builtgrowth momentum. The experience and expertise represented in its team of over200 professional staff put the business in a strong position to expand. During2006, in addition to continuing the development of its UK PPP business, thecompany has turned its attention to non-PPP asset investment in the UK andemerging PPP markets in the US, continental Europe and Singapore. In January 2007, through our specialist subsidiary, Regional and City Airports,we acquired one of the UK's fastest growing regional airports, ExeterInternational, for £60 million. We have significant expertise in the design andconstruction of airport assets and are currently developing a master plan for aphased development of the airport to match passenger demand growth. Overseas, Balfour Beatty Capital has, during the year, established offices inthe US, Germany and Singapore and preliminary bids have been submitted forprojects in each of these territories. We have been shortlisted for the OaklandAirport Connector project in California. Overseas Markets In the longer term, maintaining our growth targets will require the developmentof broadly-based domestic businesses outside the UK. Our key target markets are the United States, Western Europe and South-East Asia. In February 2007, we announced that we had reached agreement to acquire CentexConstruction, a leading US building company, from Centex Corporation for aconsideration of $362 million. It is anticipated that, upon completion, CentexConstruction will have significant net cash in its balance sheet. Centex Construction is a high-quality building company, with sales expected toexceed $2 billion in 2007. It gives Balfour Beatty critical mass in the US in acore Group business and brings substantial new business developmentopportunities, including in PPP. It is also expected to make a strong immediatecontribution to growth and generate significant value for shareholders. It operates through four divisions based in Florida, Texas, Washington DC andNorth Carolina and is among the market leaders in each of its territories ofoperation. It is also a leading player in the US military housing market and hasannounced that it has been awarded the $525 million Navy South-East contract inconjunction with its partner, GMH. OTHER ACQUISITIONS In March 2006, Balfour Beatty completed the acquisitions of Charter in the USand Edgar Allen in the UK. Charter, based in Texas, provides constructionmanagement, design and build and construction services to a range of customers,particularly in the education sector. The business, which was acquired for acash consideration of £17 million, has annual sales of approximately £100million and has become part of Heery International. Edgar Allen is a UK manufacturer of switches, crossings and other rail trackproducts, with annual sales of approximately £25 million. Its acquisition, foran initial consideration of £21 million, strengthens Balfour Beatty's leadingposition in the UK and international track products markets. THE BOARD Two new non-executive Directors were appointed to the Board in July 2006, MikeDonovan, who was most recently Chief Operating Officer of Marconi plc, andStephen Howard, who was most recently Group Chief Executive of Novar plc.Chalmers Carr retired as a non-executive Director in August 2006. Jim Cohen, anexecutive Director since 2000, retired from the Board on 18 February 2007. SAFETY The Group's accident frequency rate reduced by a further 24% during 2006,continuing the positive trend of recent years. The safety of our people andthose whom our business affects remains our highest priority. We have also madegood progress in managing our environmental impacts, including our relativecontribution to global warming and managing and recycling our waste. OUTLOOK We have record order books, a number of preferred bidder positions on majorprojects, and our markets are generally healthy and continue to offersubstantial opportunity. We have also made good progress in pursuing the strategic priorities which weset out last year and have substantially added to our earning power as a result,which will serve to underpin future growth. We believe that we will be able to make further good progress in 2007. ENDS Enquiries to:- Ian Tyler, Chief Executive Anthony Rabin, Finance Director Tim Sharp, Head of Corporate Communications Tel: 020 7216 6800 www.balfourbeatty.com * * * * * * * * Balfour Beatty is a world-class engineering, construction, services andinvestment business, well positioned in infrastructure markets which offersignificant long-term growth. We work in partnership with sophisticatedcustomers who value the highest levels of quality, safety and technicalexpertise. Our skills are applied in appropriate combinations to meet individualcustomer need. Its financial position, with significant net cash and with strongoperating cash flows, offers continuing flexibility to add additional capacityand expertise to the business mix and to make appropriate investments in PPP andother long-term growth opportunities. * * * * * * * * High resolution photographs are available to the media free of charge atwww.newscast.co.uk (tel +44 (0)20 7608 1000). A presentation to analysts and investors will be made at ABN AMRO,250 Bishopsgate, London, EC2 at 10.30 am. There will be a live webcast of this presentation on www.balfourbeatty.com andthe slides presented will be available on the website from 10.30 am. Group income statementFor the year ended 31 December 2006 2006 2005 Before Exceptional Before Exceptional exceptional items* exceptional items items* (Notes 5) Total items (Note 5) Total £m £m £m £m £m £mRevenue including share of joint ventures andassociates 5,852 - 5,852 4,938 - 4,938Share of revenue ofjoint venturesand associates 12 (1,365) - (1,365) (1,101) - (1,101) Group revenue 4,487 - 4,487 3,837 - 3,837Cost of sales (4,121) - (4,121) (3,528) (14) (3,542) Gross profit 366 - 366 309 (14) 295Net operating expenses - amortisation of intangible assets - (1) (1) - - - - other (285) (19) (304) (237) - (237)Group operating profit 81 (20) 61 72 (14) 58Share of results ofjoint venturesand associates 12 63 - 63 43 30 73Profit from operations 144 (20) 124 115 16 131Investment income 3 26 - 26 56 - 56Finance costs 4 (18) (7) (25) (37) (9) (46)Profit before taxation 152 (27) 125 134 7 141Taxation 6 (35) 1 (34) (32) (3) (35)Profit for the year attributableto equity shareholders 117 (26) 91 102 4 106 * and amortisation of intangible assets (Note 11) 2006 2005 pence penceBasic earnings per ordinaryshare 7 21.2 24.9 Diluted earnings per ordinary share 7 21.0 24.7Dividends per ordinary shareproposed for the year 8 9.1 8.1 Group statement of recognised income and expenseFor the year ended 31 December 2006 Notes 2006 2005 £m £mActuarial gains/(losses) on retirement benefitobligations 36 (14)PFI/PPP cash flow hedges - net fair value gains/(losses) 32 (17) - reclassified and reported in net profit - 1PFI/PPP financialassets - fair value revaluation (2) 10 - reclassified and reported in net profit - (4) Changes in fair value of net investment hedges 14 (6)Currency translation differences (17) 8Tax on items taken directly to equity (26) 9Net income/(expense) recognised directly in equity 37 (13)Profit for the year 91 106Total recognised income for the year attributableto equity shareholders 16 128 93 Group balance sheetAt 31 December 2006 Notes 2006 2005 £m £mNon-current assetsIntangible assets - goodwill 10 427 284 - other 11 9 -Property, plant and equipment 183 167Investments in joint ventures and associates 12 458 375Investments 46 38PFI/PPP financial assets 22 14Deferred tax assets 102 83Derivative financial instruments 2 2Trade and other receivables 50 35 1,299 998 Current assetsInventories 75 61Due from customers for contract work 252 217Derivative financial instruments 3 -Trade and other receivables 626 619Cash and cash equivalents 323 345 1,279 1,242 Total assets 2,578 2,240 Current liabilitiesTrade and other payables (1,289) (1,038)Due to customers for contract work (265) (274)Derivative financial instruments (1) (4)Current tax liabilities (28) (30)Borrowings (17) (30) (1,600) (1,376)Non-current liabilitiesTrade and other payables (77) (66)Derivative financial instruments - (2)Borrowings - PFI/PPP non-recourse term loans (21) (14) - other (1) -Deferred tax liabilities (5) (3)Liability component of preference shares (90) (98)Retirement benefit obligations 15 (288) (280)Provisions (109) (109) (591) (572) Total liabilities (2,191) (1,948) Net assets 387 292 EquityCalled-up share capital 14 215 214Share premium account 16 43 26Equity component of preference shares 16 16 18Special reserve 16 169 175Share of joint ventures' and associates' reserves 16 243 182Other reserves 16 5 5Accumulated losses 16 (304) (328)Total equity 16 387 292 Group cash flow statementFor the year ended 31 December 2006 Notes 2006 2005 £m £mCash flows from operating activitiesCash generated from operations 17(a) 217 167Income taxes paid (24) (28)Net cash from operating activities 193 139 Cash flows from investing activitiesDividends received from joint ventures andassociates 24 12Interest received 29 64Acquisition of businesses, net of cash andcash (80) (56)equivalents acquiredPurchase of property, plant and equipment (57) (57)Purchase of investments (8) -Investment in and loans made to jointventures and (22) (12)associatesInvestment in financial assets (12) (21)Disposal of businesses, net of cash and cashequivalents disposed - (15)Disposal of property, plant and equipment 9 8Disposal of investments - 6Net cash used in investing activities (117) (71) Cash flows from financing activitiesProceeds from issue of ordinary shares 6 6Purchase of ordinary shares (3) (3)Proceeds from new loans 35 6Repayment of loans (27) (80)Finance lease principal repayments (1) (2)Buy-back of preference shares (19) (11)Ordinary dividends paid (52) (28)Interest paid (5) (27)Premium paid on repayment of US Dollar term loan - (9)Preference dividends paid (12) (13)Net cash used in financing activities (78) (161) Net decrease in cash and cash equivalents (2) (93) Effects of exchange rate changes (6) 3 Cash and cash equivalents at beginning of 316 406year Cash and cash equivalents at end of year 17(b) 308 316 Notes 1 Basis of presentation The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 1985 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee relevant to its operations and effective for accounting periods beginning on 1 January 2006. IFRS 7 Financial Instruments: Disclosures, IFRS 8 Operating Segments and IFRIC 12 Service Concession Arrangements were in issue at the date of authorisation of the financial statements but not yet effective. IFRS 7 and IFRS 8 affect only disclosures and therefore have no material impact on the financial statements of the Group. The impact of IFRIC 12, which defines the accounting for the Group's PFI/PPP concessions, is currently under review. The financial statements have been prepared using accounting policies which have been applied consistently throughout the year and the preceding year. 2 Segment analysis - continuing operations For the year ended 31 December 2006 Performance by Building, Civil and activity: building specialist Rail management engineering engineering Investments and and and and Corporate services services services developments costs Total £m £m £m £m £m £m Group revenue 2,030 1,677 766 14 - 4,487 Group operating profit 42 47 35 (19) (24) 81 Share of results of joint ventures and associates 1 8 3 51 - 63 Profit from operations before exceptional items and amortisation 43 55 38 32 (24) 144 Exceptional items - (21) 2 - - (19) Amortisation of intangible assets - (1) - - - (1) Profit from operations 43 33 40 32 (24) 124 Investment income 26 Finance costs (25) Profit before taxation 125 Performance by geographic North origin: Europe America Other* Total £m £m £m £m Group revenue 3,893 572 22 4,487 Profit from operations before exceptional items and amortisation 141 (12) 15 144 Exceptional items (1) (18) - (19) Amortisation of intangible assets (1) - - (1) Profit from operations 139 (30) 15 124 For the year ended 31 December 2005 Performance by Building, Civil and activity: building specialist Rail management engineering engineering Investments and and and and Corporate services services services developments costs Total £m £m £m £m £m £m Group revenue 1,674 1,366 763 34 - 3,837 Group operating profit 32 39 32 (10) (21) 72 Share of results of joint ventures and associates 3 10 - 30 - 43 Profit from operations before exceptional items 35 49 32 20 (21) 115 Exceptional items (8) - (12) 36 - 16 Profit from operations 27 49 20 56 (21) 131 Investment income 56 Finance costs (46) Profit before taxation 141 Performance by geographic Europe North Other* Total origin: America £m £m £m £m Group revenue 3,332 483 22 3,837 Profit from operations before exceptional items 134 (20) 1 115 Exceptional items 28 (12) - 16 Profit from operations 162 (32) 1 131 * Other principally comprises the Group's operations in Hong Kong and Dubai. 3 Investment income 2006 2005 £m £m PFI/PPP non-recourse - interest on financial assets 1 36 PFI/PPP subordinated debt interest receivable 8 5 Other interest receivable and similar income 17 15 26 56 4 Finance costs 2006 2005 £m £m PFI/PPP non-recourse - other interest payable 1 19 Other interest payable - bank loans and overdrafts 3 1 - other loans 2 4 Preference shares - finance cost 12 13 18 37 Exceptional items - premium on buy-back of preference shares 7 3 - net premium on repayment of US Dollar term loan - 6 25 46 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 2006 on 1 July 2006 to holders of these shares on the register on 26 May 2006. A preference dividend of 5.375p gross (4.8375p net) per cumulative convertible redeemable preference share was paid in respect of the six months ended 31 December 2006 on 1 January 2007 to holders of these shares on the register on 24 November 2006. 5 Exceptional items 2006 2005 £m £m(a) Credited to/(charged against) profit from operations Group operating profit - litigation settlements and fines 2 (8) - National Engineering and Contracting Company: - impairment of goodwill (16) - - reorganisation costs (2) - (18) - - Birse Group integration costs (3) - - profit on sale of interest in Connect Roads - 6 - impairment of investment in Romec Ltd - (8) - impairment of goodwill in Balfour Beatty Rail Inc - (4) (19) (14) Share of results of joint ventures and associates - TXU distributions to Barking Power Ltd - 30 (19) 16(b) Charged to finance costs - premium on buy-back of preference shares (7) (3) - net premium on repayment of US Dollar term loan - (6) (Charged against)/credited to profit before taxation (26) 7 (c) Taxation thereon 1 (3) (Charged against)/credited to profit for the year (25) 4 (a) The exceptional item credited to Group operating profit in 2006 arose from the reduction in the fine (less associated costs) imposed on Balfour Beatty Rail Infrastructure Services Ltd in respect of the Hatfield derailment in October 2000. As a result of unsatisfactory performance in the central division of Balfour Beatty Construction Inc, the goodwill arising on the acquisition of National Engineering and Contracting Company has been written off and charged against Group operating profit, together with costs of reorganisation of the division. Costs incurred in the reorganisation and integration of Birse Group acquired in 2006 have been charged against Group operating profit. The exceptional items charged against Group operating profit in 2005 arose from litigation and settlement costs of £8m which include a payment to the US Government by Balfour Beatty Construction Inc, for its share of a settlement payment to resolve allegations arising from investigations into a joint venture contract awarded in 1995 and completed in 2000 and the costs awarded against Balfour Beatty Rail Infrastructure Services Ltd for admitted breaches of the Health and Safety at Work Act following the Hatfield derailment in October 2000, provision for the associated fine having been made in prior years; a profit of £6m on the disposal of a 15% interest in Connect Roads Ltd and Connect M77/GSO Holdings Ltd; an impairment charge of £8m in respect of the Group's investment in Romec Ltd; and a goodwill impairment charge of £4m in respect of Balfour Beatty Rail Inc. The exceptional item credited to profit from operations in share of results of joint ventures and associates in 2005 arises in Barking Power Ltd in which the Group holds a 25.5% interest. The £30m gain represents the Group's share, after charging taxation of £12m, of the first three distributions received by Barking Power Ltd from the administrator of TXU Europe following the damages agreement reached in December 2004 of £179m. (b) The exceptional items charged against finance costs are the premium of £7m (2005: £3m) arising on the repurchase for cancellation of 12.0m (2005: 6.8m) preference shares at a cost of £19m (2005: £11m), and, in 2005, the net premium of £6m arising from the repayment of the US Dollar term loan. (c) The exceptional items in 2006 have given rise to a net tax credit of £1m (2005: £3m net charge). 6 Taxation 2006 2005 £m £m UK current tax - corporation tax for the year at 30% (2005: 30%) 19 34 - double tax relief (4) (6) - adjustments in respect of previous periods - (9) 15 19 Foreign current tax - foreign tax on profits for the year 7 5 - adjustments in respect of previous periods - 1 7 6 Total current tax 22 25 Deferred tax - UK 11 3 - foreign tax 1 2 - adjustments in respect of previous periods - 5 Total deferred tax 12 10 Total tax charge 34 35 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 12). In addition to the Group tax charge above are amounts charged directly to equity for current tax of £8m (2005: £4m credit) and deferred tax of £7m (2005: £10m credit), which with a charge in respect of joint ventures and associates of £11m (2005: £5m) totals £26m (2005: £9m credit). The weighted average applicable tax rate is 32% (2005: 35%) based on profit before taxation, exceptional items and amortisation of intangible assets, excluding the results of joint ventures and associates. 7 Earnings per ordinary share 2006 2005 Basic Diluted Basic Diluted £m £m £m £m Earnings 91 91 106 106 Exceptional items 25 (4) Amortisation of intangible assets 1 - Adjusted earnings 117 102 m m m m Weighted average number of ordinary shares 427.1 431.0 424.2 428.7 pence pence pence pence Earnings per ordinary share 21.2 21.0 24.9 24.7 Exceptional items 5.9 (0.8) Amortisation of intangible assets 0.2 - Adjusted earnings per ordinary share 27.3 24.1 The calculation of basic earnings is based on profit for the year attributable to equity shareholders. The weighted average number of ordinary shares used to calculate diluted earnings per ordinary share has been adjusted for the conversion of share options. No adjustment has been made in respect of the potential conversion of the cumulative convertible redeemable preference shares, the effect of which would have been antidilutive throughout each year. Adjusted earnings per ordinary share, before exceptional items and amortisation of intangible assets, has been disclosed to give a clearer understanding of the Group's underlying trading performance. 8 Dividends on ordinary shares 2006 2005 Per share Amount Per share Amount pence £m pence £m Proposed dividends for the year: Interim - current year 3.9 17 3.5 15 Final - current year 5.2 22 4.6 20 9.1 39 8.1 35 Recognised dividends for the year: Final - prior year 20 16 Interim - current year 17 15 37 31 An interim dividend of 3.9p (2005: 3.5p) per ordinary share was paid on 13 December 2006. Subject to approval at the Annual General Meeting on 10 May 2007, the final 2006 dividend will be paid on 2 July 2007 to holders of ordinary shares on the register on 27 April 2007 by direct credit or, where no mandate has been given, by cheque posted on 28 June 2007 payable on 2 July 2007. These shares will be quoted ex-dividend on 25 April 2007. 9 Acquisitions On 30 March 2006, the Group acquired 100% of the issued share capital of Edgar Allen Ltd, the UK rail track products manufacturer, for an initial consideration of £21.0m, before adjustment to reflect the value of the net assets acquired estimated at £7.3m, and costs of £0.7m. The provisional fair value of net assets acquired was £7.5m and goodwill arising was £6.9m, pending finalisation of the post-acquisition review of the fair value of the net assets. The goodwill recognised is attributable to the acquisition strengthening the Group's position in the design, manufacture and supply of track products. On 31 March 2006, the Group acquired 100% of the issued share capital of Charter Builders Ltd, the US construction management company, for a consideration of £17.3m and costs of £0.8m. The provisional fair value of net assets acquired was £3.8m and goodwill arising was £14.3m, pending finalisation of the post-acquisition review of the fair value of the net assets. The goodwill recognised is attributable to the acquisition complementing the Group's US project and programme management business, with a particular strength in the education sector. On 21 July 2006, the Group acquired 100% of the issued share capital of Birse Group plc, the UK regional civil engineering company, for a consideration of £32.1m and costs of £2.2m. The provisional fair value of net liabilities acquired was £110.9m (including intangible assets recognised of £9.2m) and provisional goodwill arising was £145.2m, pending finalisation of the post-acquisition review of the fair value of the net liabilities. The goodwill recognised is attributable to the acquisition strengthening the Group's regional presence in the UK civil engineering sector. The provisional fair value of the net assets acquired, consideration paid and provisional goodwill arising on these transactions were: Book value Fair value Fair value of assets adjustments of assets acquired acquired £m £m £m Net assets acquired: Intangible assets - other - 10 10 Property, plant and equipment 13 - 13 Working capital (17) (87) (104) Retirement benefit obligations 2 (37) (35) Provisions (1) (12) (13) Current tax liabilities (1) - (1) Deferred taxation 3 33 36 Cash and cash equivalents (4) - (4) Borrowings (2) - (2) (7) (93) (100) Goodwill 167 67 Satisfied by: Cash consideration 70 Costs incurred 4 74 Deferred consideration (7) 67 In 2006, £2m deferred consideration was paid in respect of acquisitions completed in earlier years. Birse Group plc earned revenues of £154m and a loss from continuing operations of £3m (after charging exceptional items of £3m and amortisation of intangible assets of £1m) in the period since acquisition. Other acquired businesses earned revenues of £97m and profits from continuing operations of £4m in the periods since acquisition. 10 Intangible assets - goodwill Accumulated impairment Carrying Cost losses amount £m £m £m At 1 January 2006 308 (24) 284 Exchange adjustments (11) 3 (8) Businesses acquired (see Note 9) 167 - 167 Impairment losses for the year - (16) (16) At 31 December 2006 464 (37) 427 11 Intangible assets - other Accumulated Carrying Cost amortisation amount £m £m £m At 1 January 2006 - - - Businesses acquired (see Note 9) 10 - 10 Amortisation charge for the year - (1) (1) At 31 December 2006 10 (1) 9 Other intangible assets comprise customer contracts, customer relationships and brand names. 12 Joint ventures and associates Share of results and net assets of joint ventures and associates 2006 Investments and Building, Civil and developments building specialist Rail management engineering engineering and and and Barking services services services PFI/PPP Power Total £m £m £m £m £m Revenue 115 705 4 458 83 1,365 Operating profit before exceptional items 2 10 3 15 23 53 Investment income - 3 - 122 2 127 Finance costs - (1) - (84) (4) (89) Profit before taxation and exceptional items 2 12 3 53 21 91 Taxation (1) (4) - (17) (6) (28) Profit after taxation 1 8 3 36 15 63 Intangible assets - goodwill - 22 2 - - 24 - other - - - 2 - 2 Property, plant and equipment 2 61 - 29 105 197 PFI/PPP financial assets - - - 1,541 - 1,541 Net (borrowings)/cash (2) 93 6 (1,260) (9) (1,172) Other net assets/(liabilities) 4 (108) (6) 2 (26) (134) Net assets 4 68 2 314 70 458 2005 Investments and Building, Civil and developments building specialist Rail management engineering engineering and and and Barking services services services PFI/PPP Power Total £m £m £m £m £m Revenue 113 554 3 368 63 1,101 Operating profit before exceptional items 4 16 - 15 15 50 Investment income - 1 - 69 - 70 Finance costs - (1) - (52) (3) (56) Profit before taxation and exceptional items 4 16 - 32 12 64 Taxation (1) (6) - (10) (4) (21) Exceptional items - - - - 30 30 Profit after taxation 3 10 - 22 38 73 Intangible assets - goodwill - 25 2 - - 27 - other - - - 2 - 2 Property, plant and equipment 1 66 1 29 109 206 PFI/PPP financial assets - - - 1,255 - 1,255 Net (borrowings)/cash (3) 55 6 (914) (32) (888) Other net assets/(liabilities) 6 (79) (9) (123) (22) (227) Net assets 4 67 - 249 55 375 13 PFI/PPP subsidiaries As at 31 December 2006, the Group had a 100% interest in two PFI/PPP concessions through its shareholdings in Connect Roads Sunderland Holdings Ltd and Connect Roads South Tyneside Holdings Ltd. The Group also had a 100% interest in three PFI/PPP concessions through its shareholdings in Connect Roads Ltd and Connect M77/GSO Holdings Ltd until 20 December 2005, when the Group disposed of a 15% interest in those concessions and they became joint ventures. The performance of the wholly-owned PFI/PPP concessions (until ceasing to be subsidiaries as appropriate) and their balance sheets are summarised below: 2006 2005 £m £m Income statement Group revenue 14 32 Profit from operations - - Investment income 1 36 Finance costs (1) (19) Profit before taxation - 17 Taxation - (5) Profit for the year - 12 Cash flow Profit from operations - - Decrease in working capital 1 - Income taxes paid - (3) Net cash inflow/(outflow) from operating activities 1 (3) Net cash outflow from investing activities (7) (20) Net cash (outflow)/inflow from financing activities (1) 29 Net cash (outflow)/inflow (7) 6 Net borrowings at beginning of year (14) (244) Net borrowings at date of disposal - 224 Net borrowings at end of year (21) (14) Balance sheet PFI/PPP financial assets 22 14 Other net current assets (1) - Non-recourse term loans (21) (14) Net assets - - 14 Share capital During the year ended 31 December 2006, 1,375,582 ordinary shares were issued following the exercise of savings-related share options and 1,999,231 ordinary shares were issued following the exercise of executive share options for an aggregate cash consideration of £6m. During the year ended 31 December 2006, 12,012,640 preference shares were repurchased for cancellation by the Company for a total consideration of £18,836,111 at an average price of 156.8p. 15 Retirement benefit obligations The Group's actuaries have updated to 31 December 2006 on the basis of IAS 19 "Employee Benefits" the latest actuarial funding valuations of the Group's principal defined benefit schemes, namely the Balfour Beatty Pension Fund, the Balfour Beatty Shared Cost section of the Railways Pension Scheme, the two Mansell pension schemes and the Birse scheme. Details of these valuations and the disclosures prescribed by IAS 19 are set out in the Report and Accounts along with the funding valuation reviews. The principal assumptions used by the actuaries, the scheme details and IAS 19 disclosures for the Group's principal defined benefit schemes are summarised below: 2006 2005 Balfour Balfour Beatty Railways Beatty Railways Pension Pension Mansell Birse Pension Pension Mansell Fund Scheme schemes scheme Fund Scheme schemes % % % % % % % Inflation rate 3.1 3.1 3.1 3.1 2.8 2.8 2.8 Discount rate 5.15 5.15 5.15 5.15 4.75 4.75 4.75 Future salary increases 4.6 4.6 4.6 4.6 4.3 4.3 4.3 Future pension increases 3.1 3.1 3.1 3.1 2.8 2.8 2.8 Expected return on plan assets 6.35 7.30 6.79 7.36 5.98 7.00 6.60 Number Number Number Number Number Number Number Total number of members 33,943 3,322 3,361 2,086 35,057 3,342 3,397 £m £m £m £m £m £m £m IAS 19 DEFICIT Present value of funded obligations (1,876) (158) (210) (94) (1,806) (159) (212) Fair value of plan assets 1,688 150 177 62 1,629 136 160 Liability in the balance sheet (188) (8) (33) (32) (177) (23) (52) In addition, the Group has funded and unfunded post-retirement defined benefit obligations in Europe and North America amounting to £27m (2005: £28m), the majority of which arrangements are closed to new entrants. The movement in retirement benefit obligations of the Group's defined benefit schemes for the year ended 31 December 2006 was as follows: £m At 1 January 2006 (280) Exchange adjustments 2 Service cost (52) Interest cost (104) Expected return on plan assets 117 Contributions from employer 36 Benefits paid 2 Actuarial gains and losses - assets 21 - liabilities 5 Businesses acquired (35) At 31 December 2006 (288) The Balfour Beatty Pension Fund includes a defined contribution section with 4,119 members as at 31 December 2006 (2005: 2,776 members). Including £7m (2005: £4m) contributions paid and charged in the income statement in respect of this section and £6m (2005: £5m) pension costs in respect of other defined contribution schemes, the total net pension cost recognised in the income statement in the year was £52m (2005: £49m), with contributions paid of £49m (2005: £42m). The principal assumptions used by the actuaries and the funding valuations for the Group's principal defined benefit schemes are summarised below: 2006 2005 Balfour Balfour Beatty Railways Beatty Railways Pension Pension Mansell Birse Pension Pension Mansell Fund Scheme schemes scheme Fund Scheme schemes % % % % % % % Inflation assumption 3.1 3.1 3.1 3.1 2.8 2.8 2.8 Rate of increase in salaries 4.6 4.6 4.6 4.6 4.3 4.3 4.3 Rate of increase in pensions in payment (or such other fixed rate as is guaranteed) 3.1 3.1 3.1 3.1 2.8 2.8 2.8 Return on existing investments: - actives and deferred members - pre-retirement 7.75 7.75 7.75 7.75 7.7 7.7 7.7 - post-retirement 5.4 5.4 5.4 5.4 5.0 5.0 5.0 - pensioners, widows and dependants 4.9 4.9 4.9 4.9 4.5 4.5 4.5 £m £m £m £m £m £m £m SCHEME SURPLUS/(DEFICIT) Market value of assets 1,689 150 177 63 1,630 136 160 Present value of scheme liabilities (1,671) (140) (171) (64) (1,583) (137) (169) Surplus/(deficit) in scheme 18 10 6 (1) 47 (1) (9) 16 Movements in equity For the year ended 31 December 2006 Share of joint Equity ventures' Called-up Share component and share premium preference special associates' Other Accumulated capital account shares reserve reserves reserves losses Total £m £m £m £m £m £m £m £m At 1 January 2006 214 26 18 175 182 5 (328) 292 Net profit for the year - - - - 63 - 28 91 Actuarial gains on retirement benefit obligations - - - - 10 - 26 36 PFI/PPP cash flow hedges - net fair value gains - - - - 32 - - 32 PFI/PPP financial assets - fair value revaluation - - - - (2) - - (2) Changes in fair value of net investment hedges - - - - - 14 - 14 Currency translation differences - - - - (7) (10) - (17) Tax on items taken directly to equity - - 1 - (11) (8) (8) (26) Total recognised income for the year - - 1 - 85 (4) 46 128 Ordinary dividends - - - - - - (37) (37) Joint ventures' and associates' dividends - - - - (24) - 24 - Issue of ordinary shares 1 5 - - - - - 6 Buy-back of preference shares - 12 (3) - - - (12) (3) Movements relating to share-based payments - - - - - 2 (1) 1 Transfers - - - (6) - 2 4 - At 31 December 2006 215 43 16 169 243 5 (304) 387 For the year ended 31 December 2005 Share of joint Equity ventures' Called-up Share component and share premium preference special associates' Other Accumulated capital account shares reserve reserves reserves losses Total £m £m £m £m £m £m £m £m At 1 January 2005 212 15 19 181 86 29 (315) 227 Net profit for the year - - - - 73 - 33 106 Actuarial gains/(losses) on retirement benefit obligations - - - - 7 - (21) (14) PFI/PPP cash flow hedges - net fair value gains/(losses) - - - - (20) 3 - (17) - reclassified and reported in net profit - - - - - 1 - 1 PFI/PPP financial assets - fair value revaluation - - - - 29 (19) - 10 - reclassified and reported in net profit - - - - - (4) - (4) Changes in fair value of net investment hedges - - - - - (6) - (6) Currency translation differences - - - - 5 3 - 8 Tax on items taken directly to equity - - 1 - (6) 6 8 9 Total recognised income for the year - - 1 - 88 (16) 20 93 Ordinary dividends - - - - - - (31) (31) Joint ventures' and associates' dividends - - - - (12) - 12 - Issue of ordinary shares 2 4 - - - - - 6 Buy-back of preference shares - 7 (2) - - - (8) (3) Movements relating to share-based payments - - - - - (2) 2 - Transfers - - - (6) 20 (6) (8) - At 31 December 2005 214 26 18 175 182 5 (328) 292 17 Notes to the cash flow statement 2006 2005 £m £m(a) Cash generated from operations comprises: Profit from operations 124 131 Share of results of joint ventures and associates (63) (73) Depreciation of property, plant and equipment 43 41 Amortisation of other intangible assets 1 - Impairment charges 16 12 Movements relating to share-based payments 4 3 Profit on disposal of property, plant and equipment (1) (2) Profit on disposal of businesses - (6) Operating cash flows before movements in working capital 124 106 Decrease in working capital 93 61 Cash generated from operations 217 167 (b) Cash and cash equivalents comprise: Cash and deposits 142 146 Term deposits 181 199 Bank overdrafts (15) (29) 308 316(c) Analysis of net cash: Bank overdrafts (15) (29) Other short-term unsecured loans (1) - Finance leases (1) (1) Other secured loans (1) - Cash and deposits 142 146 Term deposits 181 199 305 315 PFI/PPP non-recourse - Sterling floating rate term loan term loans (2008-2027) (17) (13) - Sterling floating rate term loan (2011-2030) (4) (1) Net cash 284 301 A significant part of the PFI/PPP non-recourse project finance floating rate term loans has been swapped into fixed rate debt by the use of interest rate swaps. (d) Analysis of movement in net cash: Opening net cash 301 67 Net decrease in cash and cash equivalents (2) (93) Acquisitions - borrowings at date of acquisition (2) (1) Businesses sold - borrowings at date of disposal - 253 New loans (35) (6) Repayment of loans 27 80 Finance lease principal repayments 1 2 Exchange adjustments (6) (1) Closing net cash 284 301 18 Post balance sheet events On 5 January 2007 the Group acquired Exeter and Devon Airport Ltd for a cash consideration of £60m. On 1 February 2007 the Group agreed to acquire Centex Construction, a leading US building company, from Centex Corporation for a cash consideration of approximately US $362m. The financial information set out above (which was approved by the Board on 6 March2007) has been compiled in accordance with IFRS, but does not contain sufficientinformation to comply with IFRS. That financial information does not constitute theCompany's statutory accounts for the year ended 31 December 2006 for the purpose ofSection 240 of the Companies Act 1985 which comply with IFRS, but is extracted fromthose accounts. The Company's statutory accounts for the year ended 31 December 2006will be filed with the Registrar of Companies following the Annual General Meeting.The independent auditors' report on those accounts was unqualified and did notcontain any statement under Section 237(2) or (3) of the Companies Act 1985. TheCompany's statutory accounts for the year ended 31 December 2005 have been filed withthe Registrar of Companies. The independent auditors' report on those accounts wasunqualified and did not contain any statement under Section 237(2) or (3) of theCompanies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Balfour Beatty