16th Aug 2006 07:00
Balfour Beatty PLC16 August 2006 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE HALF-YEAR ENDED 1 JULY 2006 Financial Summary +---------------------------------------------+---------+---------+| | 2006| 2005|| | first| first|| | half| half|+---------------------------------------------+---------+---------+|Revenue including joint ventures and | | ||associates | £2,773m | £2,308m |+---------------------------------------------+---------+---------+|Pre-tax profit | | || | | ||- before exceptional items | £60m | £52m | | | | ||- after exceptional items | £39m | £67m | +---------------------------------------------+---------+---------+|Earnings per share | | || | | ||- adjusted* | 11.4p | 9.3p | | | | ||- basic | 6.5p | 13.4p |+---------------------------------------------+---------+---------+|Interim dividend per share | 3.9p | 3.5p |+---------------------------------------------+---------+---------+|Financing | | || | | ||- net cash before PFI/PPP | | ||subsidiaries (non-recourse) | £353m | £299m || | | ||- net borrowings of PFI/PPP subsidiaries | | ||(non-recourse) | £(17)m | £(247)m |+---------------------------------------------+---------+---------+ * before exceptional items Highlights - Pre-tax profit* up by 15% at £60 million - Strong operating cash performance of £133m - Adjusted earnings per share up by 23% to 11.4p - Interim dividend increased by 11% to 3.9p - Order book reaches new record level at £8.8 billion - Two PPP concessions reach financial close - Acquisitions add strength to core businesses "It is pleasing to report another period of robust profit and earnings growth,supported by a further strengthening of both our cash position and our orderbook. We have also enhanced the future earnings growth potential of the business withacquisitions in UK rail, US construction services and UK regional and specialistcivil engineering. Trading prospects in our key sectors remain positive. Our strategy for thefuture growth and development of the business is clear and we are confident thatwe will continue to make good progress in 2006 and beyond." Sir David John, Chairman Ian Tyler, Chief Executive 16 August 2006 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE HALF-YEAR ENDED 1 JULY 2006 Overview It is pleasing to report another period of robust profit and earnings growth,supported by a further strengthening of both our cash position and our orderbook. This has enabled us to increase the dividend, once again, at double-digitpercentage levels. We have also enhanced the future earnings growth potential of the business withacquisitions in UK rail, US construction services and UK regional and specialistcivil engineering, in line with the strategy outlined in the 2005 Annual Report. We remain committed to continuing the delivery of the reliable, responsiblegrowth which our shareholders have enjoyed over recent years. We are clear aboutour priorities for the continued development of the business in both the mediumand long-term and have the proven management capability to deliver. First half-year results Balfour Beatty's profit before taxation and exceptional items for the six months to 1 July 2006 were £60 million (2005: £52 million). Adjusted earnings per share were 11.4p (2005: 9.3p). The Board has declared an interim dividend of 3.9p per ordinary share (2005:3.5p). There was a net exceptional charge, after tax, of £21 million (2005: £17 millioncredit), reflecting the premium paid on the buy-back of preference shares and agoodwill write-down, partly offset by a gain arising from the settlement of anhistoric legal issue. Pre-tax profit for the period including exceptional items stood at £39 million(2005: £67 million) and basic earnings per share were 6.5p (2005: 13.4p). Cash performance was again very strong and period-end net cash stood at £353million (2005: £299 million), before taking account of the consolidation of £17million of non-recourse net debt in the wholly-owned PPP streetlightingconcessions. The period-end order book stood at £8.8 billion, up by 19% since 2 July 2005 andby 16% since the year-end. Revenue, including the Group's share of joint ventures and associates, at £2,773million (2005: £2,308 million) was up by 20%. The First half in brief Trading In the first half of the year, the Group's markets in building, engineering andinvestments remained positive and trading performance has been good, mostparticularly in building construction, utilities contracting, and professionaland technical services. The Group's continuing progress has been achieveddespite the previously anticipated changes in structure in the UK rail market. Acquisitions Three acquisitions have been completed since the beginning of 2006, at a totalnet cost to the Group of approximately £70 million. Charter, based in Texas, provides construction management, design and build andconstruction services to public and private customers, with a particularstrength in the education sector. The business which has annual sales ofapproximately £100 million complements Heery, the Group's US project andprogramme management specialist. Edgar Allen is a UK manufacturer of switches, crossings and other rail trackproducts with annual sales of approximately £25 million. Its acquisitionstrengthens Balfour Beatty's leading position as a specialist in the design,manufacture and supply of track products through Balfour Beatty Rail TrackSystems. Balfour Beatty's cash offer for Birse, the UK civil engineering company, wasdeclared wholly unconditional on 21 July. Birse, with annual sales in excess of£300 million, offers significant growth potential based on its strong strategicfit with Balfour Beatty's existing regional civil engineering businesses andadds capability in disciplines including coastal and rail-related civilengineering and process skills in the water and other sectors. The acquisitioninvolves a cash consideration of £32 million and the assumption of approximately£20 million of net debt. Order book During the first half of the year, the order book has grown substantially to£8.8 billion, with major new long-term projects secured in UK road maintenance,UK utilities contracting and UK civil engineering. We have also had notablesuccesses in the Hong Kong building, and US and Dubai road markets. In June, theBirmingham Hospital PPP project reached financial close, adding over £500million of construction, electrical and mechanical engineering work and thepotential for over £300 million of long-term service revenues. The Board Two new non-executive Directors were appointed to the Board in the first half ofthe year. Mike Donovan was most recently Chief Operating Officer of Marconi plc,with previous senior management experience at British Aerospace, Vickers and theRover Group. Stephen Howard was most recently Group Chief Executive of Novarplc, having had a long and successful career with Cookson Group plc. Theirappointments were effective from 1 July 2006. Jim Cohen, who has been an executive Director since 2000, will retire from theBoard with effect from 18 February 2007. Chalmers Carr, who was appointed a non-executive Director in 2003, is to retirefrom the Board on 31 August 2006. Business Sectors Building, Building Management and Services Profit from operations in the building sector has more than doubled to £17million (2005: £8 million) in the period. In building construction, both Manselland Balfour Beatty Construction performed well, the latter resuming its normalpattern following the losses incurred on a small number of constructioncontracts in the first half of last year. Profits from building services alsoimproved, and performance in facilities management and programme and projectmanagement was satisfactory. The acquisition of Charter will significantlyincrease Heery's presence in the growing US education market. Order intake was particularly strong, with the sector order book increasing to£3.2 billion following a number of significant successes. These included theconversion of preferred bidder positions on Birmingham Hospital and BirminghamSchools PPP projects to financial close, and further good progress in theaffordable housing sector. The first phase of the new Blackburn Hospital was handed over on time andbudget. Further good progress is expected in the building sector in the second half ofthe year. Civil and Specialist Engineering and Services Profit from operations before exceptional items in the engineering sector roseby 41% to £24 million (2005: £17 million) in the period. Good progress was madein most constituent businesses, including improving volumes and profits in theUtilities business after the major contract wins of last year; continuing growthin profits from the road maintenance business; an increasing contribution fromBalfour Beatty Management; and further performance improvement in ourjointly-owned companies in Hong Kong and Dubai. The UK civil engineering business has now been augmented by the acquisition ofBirse, creating a UK presence with combined annual revenues of approximately£700 million, and much improved geographical and sector coverage. In the US, Balfour Beatty Construction Inc's civil engineering businesses inCalifornia and Texas performed well. Performance in the Central division wasless satisfactory and appropriate action has been taken. In addition, we havedecided to write-down the division's carrying value by £17 million. The sector order book stands at £4.4 billion. During the first half of the year,major new projects and major extensions were won in UK road maintenance; in UKcivil engineering, most notably for the northern ticket hall at the new King'sCross Underground station; in the UK electricity and gas sector; and in majornew infrastructure work in Australia, Hong Kong and Dubai. Performance in the engineering sector is expected to show satisfactory progress in the second half of the year. Rail Engineering and Services Profit from operations before exceptional items in the rail sector fell to £11million (2005: £20 million) in the first half of the year. As anticipated, thisreflected a sharp fall in contribution from the UK business following thesubstantial one-off settlements of completed contracts achieved last year andgenerally lower levels of activity for Network Rail. Progress on major railcontracts at Heathrow Terminal 5 for BAA and work on the London Undergroundtrack renewal programme continued to accelerate, including the completerefurbishment of the Waterloo and City line. The acquisition of Edgar Allen, inMarch, significantly strengthens our track systems and products business. Performance in Europe and the US improved. Balfour Beatty Rail Power Systemsreported increased profits in Germany, where the complex multi-disciplinaryIngolstadt to Nuremberg line was commissioned and opened on time. Progress wasalso good in Italy, and a new electrification project was secured in China. Inthe US, the process of repositioning the rail business to service specificmarket requirements continued and performance under a previously problematicmajor signalling contract in Pennsylvania stabilised. The rail order book stands at £1.2 billion. Performance in the rail sector is anticipated to recover strongly in the secondhalf of the year as a result of improvements in the UK and continuing progresselsewhere. Investments and Developments Profit from operations before exceptional items in the investments anddevelopments sector at £15 million was well ahead of the comparable period(2005: £8 million). This reflected the reclassification of Connect fromsubsidiary to joint venture following last year's sale of 15% of its equity,steady concession performance, and increased profits from Barking Power, whereavailability was good and electricity prices were favourable. Two important projects reached financial close during the first half of theyear. The £553 million Birmingham Hospital PPP project passed the government'sreview process successfully in April and reached financial close in June. The£74 million Birmingham Schools PPP project reached financial close in April. The Metronet PPP concessions, in which we have a 20% interest, continued to makeprogress in most areas, although there have been delays to the station upgradeprogramme and some challenging operating issues. The contribution to the Group'sprofits of our investment in Metronet was in line with the comparable period in 2005. The Group now has 20 operating concessions, with a further three projects atpreferred bidder stage - the Northern Batch Hospitals scheme in Manchester, thePinderfields Hospital in Yorkshire and the Derby Streetlighting project. The Group's PFI/PPP portfolio was subject to a Directors' valuation, on adiscounted cash flow basis, which gave a value as at the end of2005 of £289 million. Ten UK bids are under active preparation and the pipeline of available biddingopportunities remains strong. The Group has now established satellite investmentbusinesses in the US, Germany and Hong Kong. Bids or prequalification statementsare in preparation for road, rail and accommodation projects in the US andaccommodation projects in Germany and Singapore. The Group is also assessingbidding opportunities for non-PFI assets in the UK. Good progress is anticipated in this sector in the second half of the year. Outlook Trading prospects in our key sectors remain positive, with a continuing flow ofmajor orders and new opportunities. The Group's cash performance continues totrack profits over time and the net cash position remains strong. Opportunitiesto strengthen further the business through investment and acquisition continueto be pursued. Our strategy for the future growth and development of thebusiness is clear and we are confident that we will continue to make goodprogress in 2006 and beyond. ENDS Enquiries to:- Ian Tyler, Chief Executive Anthony Rabin, Finance Director Tim Sharp, Head of Corporate Communications Tel: 020 7216 6800 www.balfourbeatty.com * * * * * * * * Balfour Beatty is a world-class engineering, construction and services group,well positioned in infrastructure markets which offer significant long-termgrowth potential. We seek to operate safely and sustainably. We work inpartnership with sophisticated customers who value the highest levels ofquality, safety and technical expertise and for whom infrastructure quality,efficiency and reliability are critical. Our skills are applied in appropriatecombination to meet individual customer needs. * * * * * * * * 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 Cazenove, 20 Moorgate,London, EC2 at 9.30 am. There will be a live webcast of this presentation on www.balfourbeatty.com andthe slides presented will be available on the website from 9.30 am. * * * * * * * * The Interim Report for the half-year ended 1 July 2006 together with theIndependent Review Report of Deloitte & Touche LLP will be posted on 22 August2006 to holders of ordinary shares and preference shares. Copies will also beavailable for members of the public at the Company's registered office at 130Wilton Road, London, SW1V 1LQ and the report can be viewed on the Company'swebsite at www.balfourbeatty.com. The interim 2006 dividend of 3.9p net per ordinary share will be paid on 13December 2006 to holders of these shares on the register on 27 October 2006 bydirect credit or, where no mandate has been given, by cheque posted on 12December 2006 payable on 13 December 2006. The ordinary shares will be quotedex-dividend on 25 October 2006. A preference dividend of 5.375p gross (4.8375p net at current tax rate) percumulative convertible redeemable preference share will be paid in respect ofthe six months ending 31 December 2006 on 1 January 2007 to holders of theseshares on the register on 24 November 2006 by direct credit or, where no mandatehas been given, by cheque posted on 28 December 2006 payable on 1 January 2007.The preference shares will be quoted ex-dividend on 22 November 2006. * * * * * * * * Group income statement For the half-year ended 1 July 2006 based on unaudited figures 2006 2005 2005 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 £mRevenue includingshare of jointventures andassociates 2,773 - 2,773 2,308 - 2,308 4,938 - 4,938 Share of revenue ofjoint venturesand associates 3 (719) - (719) (494) - (494) (1,101) - (1,101) Group revenue 2,054 - 2,054 1,814 - 1,814 3,837 - 3,837 Cost of sales (1,900) (15)(1,915) (1,672) - (1,672) (3,528) (14) (3,542) Gross profit 154 (15) 139 142 - 142 309 (14) 295 Net operating expenses (129) - (129) (118) - (118) (237) - (237) Group operating profit 25 (15) 10 24 - 24 72 (14) 58 Share of results ofjoint venturesand associates 3 31 - 31 19 24 43 43 30 73 Profit from operations 56 (15) 41 43 24 67 115 16 131 Investment income 4 12 - 12 29 - 29 56 - 56 Finance costs 5 (8) (6) (14) (20) (9) (29) (37) (9) (46) Profit before taxation 60 (21) 39 52 15 67 134 7 141 Taxation 7 (11) - (11) (12) 2 (10) (32) (3) (35) Profit for the periodattributable to equityshareholders 49 (21) 28 40 17 57 102 4 106 2006 2005 2005 first half first half year pence pence penceBasic earningsper ordinary share 8 6.5 13.4 24.9 Diluted earnings perordinary share 8 6.5 13.2 24.7 Dividends perordinary shareproposed forthe period 9 3.9 3.5 8.1 Group statement of recognised income and expense For the half-year ended 1 July 2006 based on unaudited figures 2006 2005 2005 first half first half year Notes £m £m £mActuarial gains/(losses)on retirement benefitobligations 46 - (14) PFI/PPPcash - net fair value gains/(losses) 25 (14) (17)flowhedges - reclassified and reported in net profit - - 1 PFI/PPPfinancialassets - fair value revaluation (28) 19 10 - reclassified and reported in net profit - - (4) Changes infair value ofnet investmenthedges 7 (2) (6) Currencytranslationdifferences (7) 4 8 Tax on items taken directlyto equity (15) (1) 9 Net income/(expense) recogniseddirectly in equity 28 6 (13) Profit for the period 28 57 106 Total recognised income for theperiod attributable to equity shareholders 14 56 63 93 Group balance sheet At 1 July 2006 based on unaudited figures 2006 2005 2005 Notes first first year half half £m £m £mNon-current assetsGoodwill 292 276 284Property, plant and equipment 170 156 167Investments in joint ventures and associates 3 400 252 375Investments 47 42 38PFI/PPP financial assets 20 356 14Deferred tax assets 67 64 83Derivative financial instruments 1 - 2Trade and other receivables 35 52 35 1,032 1,198 998 Current assetsInventories 75 58 61Due from customers for contract work 263 267 217Derivative financial instruments 5 1 -Trade and other receivables 614 520 619Cash andcash - PFI/PPP subsidiaries - 23 -equivalents - other 381 306 345 1,338 1,175 1,242 Total assets 2,370 2,373 2,240 Current liabilitiesTrade and other payables (1,182) (983) (1,038)Due to customers for contract work (274) (251) (274)Derivative financialinstruments - PFI/PPP subsidiaries - (14) - - other - (4) (4) Current tax liabilities (32) (31) (30) Borrowings - PFI/PPP non-recourse term loans - (14) - - other (28) (7) (30) (1,516) (1,304) (1,376)Non-current liabilitiesborrowings - PFI/PPP non-recourse term loans (17) (256) (14)Liability component of preference shares (90) (99) (98)Derivative financial instruments - - (2)Trade and other payables (68) (68) (66)Deferred tax liabilities (4) (2) (3)Retirement benefit obligations 11 (237) (256) (280)Provisions (112) (111) (109) (528) (792) (572)Total liabilities (2,044) (2,096) (1,948) Net assets 326 277 292 EquityCalled-up share capital 14 214 213 214Share premium account 14 40 24 26Equity component of preference shares 14 16 18 18Special reserve 14 172 178 175Share of joint ventures' andassociates' reserves 14 199 133 182Other reserves 14 10 25 5Accumulated losses 14 (325) (314) (328)Total equity 326 277 292 Group cash flow statement For the half-year ended 1 July 2006 based on unaudited figures 2006 2005 2005 first half first half year Notes £m £m £m Cash flows from operating activitiesCash generated from operations 16.1 133 89 167Income taxes paid (9) (12) (28)Net cash from operating activities 124 77 139 Cash flows from investing activitiesDividends received from jointventures and associates 7 6 12Interest received 14 26 64Acquisition of businesses, net ofcash and cash equivalents acquired (21) (6) (56)Purchase of property, plant and equipment (28) (29) (57)Purchase of investments (10) - -Investment in and loans made tojoint ventures and associates (8) (4) (12)Investment in financial assets (4) (16) (21)Disposal of businesses, net of cashand cash equivalents disposed - - (15)Disposal of property, plant and equipment 6 4 8Disposal of investments - 2 6Net cash used in investing activities (44) (17) (71) Cash flows from financing activitiesProceeds from issue of ordinary shares 3 3 6Purchase of ordinary shares (4) (1) (3)Proceeds from new loans 30 2 6Repayment of loans - (72) (80)Finance lease principal repayments (1) (2) (2)Buy-back of preference shares (17) (9) (11)Ordinary dividends paid (15) (28) (28)Interest paid (2) (14) (27)Premium paid on repayment of USDollar term loan - (9) (9)Preference dividends paid (6) (13) (13)Net cash used in financing activities (12) (143) (161) Net increase/(decrease) in cash andcash equivalents 68 (83) (93) Effects of exchange rate changes (3) - 3 Cash and cash equivalents atbeginning of period 316 406 406 Cash and cash equivalents at end of period 16.2 381 323 316 Notes 1 Basis of presentation The interim financial statements have been prepared on the basis of the accounting policies set out in the 2005 Balfour Beatty plc Annual Report and Accounts. 2 Segment analysis For the half-year ended 1 July 2006 Performance by activity: Building, Civil and Rail Investments Corporate Total building specialist engineering and costs management engineering and developments and and services services services £m £m £m £m £m £m Group revenue 955 717 376 6 - 2,054 Group operating profit 16 17 11 (8) (11) 25 Share of results of joint 1 7 - 23 - 31 ventures and associates Profit from operations 17 24 11 15 (11) 56 before exceptional items Exceptional items - (17) 2 - - (15) Profit from operations 17 7 13 15 (11) 41 Investment income 12 Finance costs (14) Profit before taxation 39 Performance by geographic origin: Europe North Other Total America £m £m £m £m Group revenue 1,756 283 15 2,054 Profit from operations 61 (9) 4 56 before exceptional items Exceptional items 2 (17) - (15) Profit from operations 63 (26) 4 41 For the half-year ended 2 July 2005 Performance by activity: Building, Civil and Rail Investments Corporate Total building specialist engineering and costs management engineering and developments and and services services services £m £m £m £m £m £m Group revenue 788 633 367 26 - 1,814 Group operating profit 6 12 20 (4) (10) 24 Share of results of joint 2 5 - 12 - 19 ventures and associates Profit from operations 8 17 20 8 (10) 43 before exceptional items Exceptional items - - - 24 - 24 Profit from operations 8 17 20 32 (10) 67 Investment income 29 Finance costs (29) Profit before taxation 67 Performance by geographic origin: Europe North Other Total America £m £m £m £m Group revenue 1,590 218 6 1,814 Profit from operations 58 (16) 1 43 before exceptional items Exceptional items 24 - - 24 Profit from operations 82 (16) 1 67 For the year ended 31 December 2005 Performance by activity: Building, Civil and Rail Investments Corporate Total building specialist engineering and costs management engineering and developments and and services services services £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 origin: Europe North Other Total 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 3 Share of results and net assets of joint ventures and associates 2006 2005 2005 first half first half year £m £m £m Income statement Share of revenue of joint ventures and associates 719 494 1,101 Operating profit before exceptional items 25 21 50 Investment income 60 29 70 Finance costs (43) (22) (56) Taxation (11) (9) (21) Share of results of joint ventures and associates before exceptional items 31 19 43 Balance sheet Property, plant and equipment 200 184 206 PFI/PPP financial assets 1,369 795 1,255 Net cash/(borrowings)- PFI/PPP non-recourse (1,186) (594) (914) - other 83 2 26 Other net liabilities (66) (135) (198) Share of net assets of joint ventures and associates 400 252 375 4 Investment income 2006 2005 2005 first half first half year £m £m £m PFI/PPP non-recourse - interest on financial assets 1 18 36 PFI/PPP subordinated debt interest receivable 3 3 5 Other interest receivable and similar income 8 8 15 12 29 56 5 Finance costs 2006 2005 2005 first half first half year £m £m £m PFI/PPP non-recourse - other interest payable 1 9 19 Other interest payable - bank loans and overdrafts - 2 1 - other loans 1 2 4 2 13 24 Preference shares - finance cost 6 7 13 8 20 37 Exceptional items - premium on buy-back of preference shares 6 3 3 - net premium on repayment of US Dollar term loan - 6 6 14 29 46 A preference dividend of 5.375p gross (4.8375p net) per cumulative convertibleredeemable preference share of 1p was paid in respect of the six months ended30 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 at current tax rate) percumulative convertible redeemable preference share will be paid in respect ofthe six months ending 31 December 2006 on 1 January 2007 to holders of these shares on the register on 24 November 2006 by direct credit or, where no mandatehas been given, by cheque posted on 28 December 2006 payable on 1 January 2007.These shares will be quoted ex-dividend on 22 November 2006. 6 Exceptional items 2006 2005 2005 first half first half year £m £m £m 6.1 Credited to/(charged against) profit from operations Group operating profit - litigation settlements and fines 2 - (8) - 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) - impairment of goodwill in National Engineering and Contracting Company (17) - - (15) - (14) Share of results of joint ventures and associates - TXU distributions to Barking Power Ltd - 24 30 (15) 24 16 6.2 Charged to finance costs - premium on buy-back of preference shares (6) (3) (3) - net premium on repayment of US Dollar term loan - (6) (6) (Charged against)/credited to profit before taxation (21) 15 7 Taxation thereon - 2 (3) (Charged against)/credited to profit for the period (21) 17 4 6.1 The exceptional item credited to Group operating profit in 2006 arose fromthe reduction in the fine (less associated costs) imposed on Balfour BeattyRail Infrastructure Services Ltd in respect of the Hatfield derailment in October 2000. As a result of unsatisfactory performance in the Central divisionof Balfour Beatty Construction Inc, the goodwill arising on the acquisition ofNational Engineering and Contracting Company has been written off and chargedagainst Group operating profit in 2006. The exceptional items charged againstGroup operating profit in 2005 arose from litigation and settlement costs of£8m which includes a payment to the US Government by Balfour Beatty ConstructionInc, for its share of a settlement payment to resolve allegations arising frominvestigations into a joint venture contract awarded in 1995 and completed in2000 and the costs awarded against Balfour Beatty Rail Infrastructure ServicesLtd for admitted breaches of the Health and Safety at Work Act following theHatfield derailment in October 2000, provision for the associated fine havingbeen made in prior years; a profit of £6m on the disposal of a 15% interest inConnect Roads Ltd and Connect M77/GSO Holdings Ltd; an impairment charge of £8min respect of the Group's investment in Romec Ltd; and a goodwill impairmentcharge of £4m in respect of Balfour Beatty Rail Inc. The exceptional item credited to profit from operations in share of results ofjoint ventures and associates in 2005(first half £24m, full year £30m) arisesin Barking Power Ltd in which the Group holds a 25.5% interest. The gainrepresents the Group's share, after charging taxation (first half £10m, fullyear £12m), of the distributions received by Barking Power Ltd from theadministrator of TXU Europe following the damages agreement reached in December2004 of £179m. 6.2 The exceptional items charged against finance charges are the premium of£6m (2005: first half £3m, full year £3m) arising on the repurchase forcancellation of 10.8m (2005: first half 5.6m, full year 6.8m) preference sharesat a cost of £17m(2005: first half £9m, full year £11m), and, in 2005, the netpremium of £6m arising from the repayment of the US Dollar term loan. 7 Taxation 2006 2005 2005 first half first half year £m £m £m UK current tax 6 6 19 Foreign current tax 3 2 6 Deferred tax 2 2 10 Total tax charge 11 10 35 Corporation tax for the period is charged at 39% (2005: first half 36%, fullyear 35%), representing the best estimate of the weighted average annualcorporation tax rate expected for the full financial year, based on profitbefore taxation and exceptional items, excluding the results of joint venturesand associates. 8 Earnings per ordinary share 2006 2005 2005 first half first half year Basic Diluted Basic Diluted Basic Diluted £m £m £m £m £m £m Earnings 28 28 57 57 106 106 Exceptional items 21 (17) (4) Adjusted earnings 49 40 102 m m m m m m Weighted average number of ordinary shares 426.2 430.9 423.0 428.4 424.2 428.7 pence pence pence pence pence pence Earnings per ordinary share 6.5 6.5 13.4 13.2 24.9 24.7 Exceptional items 4.9 (4.1) (0.8) Adjusted earnings per ordinary share 11.4 9.3 24.1 The calculation of basic earnings is based on profit for the period attributableto equity shareholders. The weighted average number of ordinary shares used tocalculate diluted earnings per ordinary share has been adjusted for theconversion of share options. No adjustment has been made in respect of thepotential 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, has beendisclosed to give a clearer understanding of the Group's underlying tradingperformance. 9 Dividends on ordinary shares 2006 2005 2005 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 2005 - - 3.5 15 3.5 15 Final 2005 - - - - 4.6 20 Interim 2006 3.9 17 - - - - 3.9 17 3.5 15 8.1 35 Recognised dividends for the period: Final 2004 - 16 16 Interim 2005 - - 15 Final 2005 20 - - 20 16 31 The interim 2006 dividend will be paid on 13 December 2006 to holders ofordinary shares on the register on 27 October 2006 by direct credit or, whereno mandate has been given, by cheque posted on 12 December 2006 payable on 13 December 2006. These shares will be quoted ex-dividend on 25 October 2006. 10 PFI/PPP subsidiaries At 1 July 2006, the Group had a 100% interest in two PFI/PPP concessions throughits shareholdings in Connect Roads Sunderland Holdings Ltd and Connect RoadsSouth Tyneside Holdings Ltd. The Group also had a 100% interest in threePFI/PPP concessions through its shareholdings in Connect Roads Ltd and ConnectM77/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 ofthe wholly-owned PFI/PPP concessions (until ceasing to be subsidiaries asappropriate) and their balance sheets are summarised below: 2006 2005 2005 first half first half year £m £m £m Income statement Group revenue 6 24 32 Profit from operations - - - Investment income 1 18 36 Finance costs (1) (9) (19) Profit before taxation - 9 17 Taxation - (3) (5) Profit for the period - 6 12 Cash flow Profit from operations - - - Decrease in working capital - 5 - Income taxes paid - (1) (3) Net cash inflow/(outflow) from operating activities - 4 (3) Net cash (outflow)/inflow from investing activities (3) (1) 20 Net cash outflow from financing activities - (6) (11) Net cash (outflow)/ inflow (3) (3) 6 Net borrowings at beginning of period (14) (244) (244) Net borrowings at date of disposal - - 224 Net borrowings at end of period (17) (247) (14) Balance sheet PFI/PPP financial assets 20 356 14 Derivative financial instruments - (14) - Current and deferred taxation (1) (23) - Cash and cash equivalents - 23 - Non-recourse term loans (17) (270) (14) Net assets 2 72 - 11 Retirement benefit obligations The IAS 19 valuations of the Group's principal defined benefit pension schemeshave been updated to 1 July 2006. The principal actuarial assumptions used wereas follows: 2006 2005 first half year % % Inflation rate 3.00 2.80 Discount rate 5.25 4.75 Future salary increases 4.50 4.30 Future pension increases 3.00 2.80 The movement in retirement benefit obligations for the half-year ended 1 July 2006 was as follows: £m At 1 January 2006 (280) Service cost (29) Interest cost (51) Expected return on plan assets 58 Contributions from employer 21 Benefits paid 1 Actuarial gains and losses - assets (42) - liabilities 87 Business acquired (2) At 1 July 2006 (237) 12 Borrowings During the half-year ended 1 July 2006, the Group obtained a new short-term bankloan in the amount of US$50m. The loan bears interest at market rates and isrepayable within one year. The proceeds were converted to sterling. The borrowing forms part of the Group's strategy of hedging its foreign currency netassets. 13 Share capital During the half-year ended 1 July 2006, 86,119 ordinary shares were issuedfollowing the exercise of savings-related share options and 1,242,772 ordinaryshares were issued following the exercise of executive share options for anaggregate cash consideration of £3m. During the half-year ended 1 July 2006, 10,849,390 preference shares wererepurchased for cancellation by the Company for a total consideration of£17,067,611 at an average price of 157.3p. 14 Movements in equity For the half-year ended 1 July 2006 Called-up share Share Equity Special Share of Other Accumulated Total capital premium component reserve joint reserves losses account of ventures' preference and shares associates' reserves £m £m £m £m £m £m £m £m At 1 January 2006 214 26 18 175 182 5 (328) 292 Net profit for the period - - - - 31 - (3) 28 Actuarial gains on - - - - 1 - 45 46 retirement benefit obligations PFI/PPP cash flow hedges - net fair value gains/(losses) - - - - 25 - - 25 PFI/PPP financial assets - fair value revaluation - - - - (31) 3 - (28) Changes in fair value of - - - - - 7 - 7 net investment hedges Currency translation - - - - (3) (4) - (7) differences Tax on items taken - - 1 - 1 (3) (14) (15) directly to equity Total recognised income - - 1 - 24 3 28 56 for the period Ordinary dividends - - - - - - (20) (20) Joint ventures' and - - - - (7) - 7 - associates' dividends Issue of ordinary shares - 3 - - - - - 3 Buy-back of preference - 11 (3) - - - (11) (3) shares Movements relating to - - - - - - (2) (2) share-based payments Transfers - - - (3) - 2 1 - At 1 July 2006 214 40 16 172 199 10 (325) 326 For the half-year ended 2 July 2005 Called-up share Share Equity Special Share of Other Accumulated Total capital premium component reserve joint reserves losses account of ventures' preference and shares associates' reserves £m £m £m £m £m £m £m £m At 1 January 2005 212 15 19 181 86 29 (315) 227 Net profit for the period - - - - 43 - 14 57 PFI/PPP cash flow hedges - net fair value gains/(losses) - - - - (13) (1) - (14) PFI/PPP financial assets - fair value revaluation - - - - 20 (1) - 19 Changes in fair value of - - - - - (2) - (2) net investment hedges Currency translation - - - - 4 - - 4 differences Tax on items taken - - - - (1) - - (1) directly to equity Total recognised income - - - - 53 (4) 14 63 for the period Ordinary dividends - - - - - - (16) (16) Joint ventures' and - - - - (6) - 6 - associates' dividends Issue of ordinary shares 1 2 - - - - - 3 Buy-back of preference shares - 7 (1) - - - (7) (1) Movements relating to - - - - - - 1 1 share-based payments Transfers - - - (3) - - 3 - At 2 July 2005 213 24 18 178 133 25 (314) 277 For the year ended 31 December 2005 Called-up share Share Equity Special Share of Other Accumulated Total capital premium component reserve joint reserves losses account of ventures' preference and shares associates' reserves £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) - - - - 7 - (21) (14) on retirement benefit obligations 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 - - - - - (6) - (6) net investment hedges Currency translation - - - - 5 3 - 8 differences Tax on items taken - - 1 - (6) 6 8 9 directly to equity Total recognised income - - 1 - 88 (16) 20 93 for the year Ordinary dividends - - - - - - (31) (31) Joint ventures' and - - - - (12) - 12 - associates' dividends Issue of ordinary shares 2 4 - - - - - 6 Buy-back of preference - 7 (2) - - - (8) (3) shares Movements relating to - - - - - (2) 2 - share-based payments Transfers - - - (6) 20 (6) (8) - At 31 December 2005 214 26 18 175 182 5 (328) 292 15 Acquisitions On 30 March 2006, the Group acquired 100% of the issued share capital of EdgarAllen, the UK rail track products manufacturer, for a consideration of £21.0mand costs of £0.6m. The provisional fair value of net assets acquired was £9.7mand goodwill arising was £11.9m. The goodwill recognised is attributable to theacquisition strengthening the Group's leading position in the design,manufacture and supply of track products. On 31 March 2006, the Group acquired 100% of the issued share capital ofCharter, the US construction management company, for a consideration of £17.3mand costs of £0.5m. The provisional fair value of net assets acquired was £2.9mand goodwill arising was £14.9m. The goodwill recognised is attributable to theacquisition complementing the Group's US project and programme managementbusiness, with a particular strength in the education sector. The provisional fair value of the net assets acquired, consideration paid andprovisional goodwill arising on these transactions were: Book Fair value Fair value value of adjustments of assets assets acquired acquired £m £m £m Net assets acquired: Property, plant and equipment 2 - 2 Working capital (5) (2) (7) Cash and cash equivalents 19 - 19 Borrowings (1) - (1) Current tax liabilities (1) - (1) 14 (2) 12 Goodwill 27 39 Satisfied by: Cash consideration 38 Costs incurred 1 39 The subsidiary businesses acquired earned revenues of £74.3m and profit fromoperations of £1.5m for the half-year, of which £31.3m and £1.0m respectivelywere earned in the period since acquisition. During the half-year ended 1 July 2006, £1.3m deferred consideration was paid inrespect of acquisitions completed in earlier years. 16 Notes to the cash flow statement 2006 2005 2005 first first year half half £m £m £m 16.1 Cash generated from operations comprises: Profit from operations 41 67 131 Share of results of joint ventures and associates (31) (43) (73) Depreciation of property, plant and equipment 21 20 41 Impairment charge 17 - 12 Movements relating to share-based payments 2 2 3 Profit on disposal of property, plant and (1) (1) (2) equipment Profit on disposal of businesses - - (6) Operating cash flows before movements in working capital 49 45 106 Decrease in working capital 84 44 61 Cash generated from operations 133 89 167 16.2 Cash and cash equivalents comprise: Cash and deposits 113 142 146 Term deposits 268 164 199 UK PFI/PPP project finance - cash and deposits - 2 - - term deposits - 21 - Bank overdrafts - (6) (29) 381 323 316 16.3 Analysis of net cash: Bank overdrafts - (6) (29) Other short-term loans (27) (1) - Finance leases (1) - (1) Cash and deposits 113 142 146 Term deposits 268 164 199 353 299 315 UK PFI/PPP project finance - Sterling floating rate term loan (2008-2027) (15) (10) (13) - Sterling floating rate term loan (2011-2030) (2) - (1) - Sterling floating rate term loan (2005-2011) - (24) - - Sterling floating rate term loan (2005-2012) - (88) - - Sterling fixed rate bond (2006-2034) - (148) - - cash and deposits - 2 - - term deposits - 21 - Net cash 336 52 301 16.4 Analysis of movement in net cash: Opening net cash 301 67 67 Net increase/(decrease) in cash and cash equivalents 68 (83) (93) Acquisitions - borrowings at date of acquisition (1) - (1) Businesses sold - borrowings at date of disposal - - 253 New loans (30) (2) (6) Repayment of loans - 72 80 Finance lease principal repayments 1 2 2 Exchange adjustments (3) (4) (1) Closing net cash 336 52 301 17 Post balance sheet events On 21 July 2006, the Group acquired Birse Group plc, a UK regional constructionand engineering services company, for a cash consideration of £32m. The results for the half-year ended 1 July 2006 are unaudited and were approvedby the Board on 15 August 2006. The full year figures for 2005 included in thisreport do not constitute statutory accounts for the purposes of Section 240 ofthe Companies Act 1985. A copy of the Company's statutory accounts for the yearended 31 December 2005 has been delivered to the Registrar of Companies. Theindependent auditors' report on those accounts was unqualified and did notcontain any statement under Section 237(2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Balfour Beatty