17th Aug 2005 07:00
Balfour Beatty PLC17 August 2005 BALFOUR BEATTY PLC INTERIM RESULTS FOR THE SIX MONTHS TO 2 JULY 2005 Financial Summary 2005 2004 pro 2004 forma+Revenue including joint venturesand associates £2,308m £2,026m £2,026m Profit before tax from continuingoperations- before exceptional items £52m £44m £53m- after exceptional items £67m £49m £56m Earnings per share- adjusted* 9.3p 10.1p 10.4p- basic 13.4p 10.9p 9.6p Financing- Net cash before PPP subsidiaries £299m £121m £121m- Net borrowings of PPP subsidiaries (non-recourse) £(247m) £(238)m £(238)m * Before exceptional items and the premium arising on the buy-back of preferenceshares, and including the results of discontinued operations+ Including the impact of IAS 32 and IAS 39 on first half 2004 numbers Highlights • Continuing growth in comparable pre-tax profits• Strong operating cash performance• Earnings per share impacted by increased tax charge• Interim dividend up 23% at 3.5p (2004: 2.85p)• Order book at record £7.4bn, up 9% since year end• Bassetlaw and North Lanarkshire Schools PFIs reach financial close• Acquisitions of UK ground engineering specialist and German rail signalling business "The period saw satisfactory results in most of our businesses and strong orderintake, most notably in the UK utilities market. In the US, management changes,reorganisation and other steps taken to address the poor performance of the lasttwo years have begun to show results, with a significantly improved performancein the civil engineering business. We expect our seasonal performance to resumeits normal pattern and anticipate that 2005 as a whole will be a year of goodprogress." Sir David John, Chairman Ian Tyler, Chief Executive BALFOUR BEATTY PLC INTERIM RESULTS FOR THE SIX MONTHS TO 2 JULY 2005 INTERNATIONAL FINANCIAL REPORTING STANDARDS These results are the Group's first to be presented under InternationalFinancial Reporting Standards (IFRS). While the new standards have little impacton the results in Balfour Beatty's contracting sectors (Building, Engineeringand Rail), two of the new standards, IAS 32 and IAS 39, relating to financialinstruments, fundamentally affect the way we account for our interests in PFI/PPP concessions and for our preference shares. The results presented in theformal accounts reflect the application of these standards to first half 2005results but not to those for the first half of 2004, with a consequent impact oncomparability. In order to provide appropriate period-to-period comparisons, in addition to theformal accounts we have provided "pro forma" first half and full year 2004results, including the impact of IAS 32 and IAS 39, following this statement. FIRST HALF YEAR RESULTS Balfour Beatty, the international engineering, construction and services group,today announced profits from continuing operations before tax and exceptionalitems for the six months to 2 July 2005 of £52 million (2004: £44 million*).Adjusted earnings per share were 9.3p (2004: 10.1p*), reflecting an increasedtax charge following £4 million Advance Corporation Tax credits in the firsthalf of 2004. The Board has declared an interim dividend increased by 23% to 3.5p perordinary share (2004: 2.85p). This represents a rebased level, following thetrend in recent periods of earnings per share growth to outstrip dividendgrowth. There was a net exceptional profit after tax of £17 million in the first half of2005, arising from the receipt of initial distributions by Barking Power fromthe administrators of TXU Europe, of which Balfour Beatty's share was£24 million after tax. This was offset by the premium paid on the purchase ofpreference shares (£3 million), together with the cost of repaying a US$120million term loan (£4 million after tax). Pre-tax profit for the period fromcontinuing operations, including exceptional items, stood at £67 million (2004:£49 million*) and basic earnings per share rose to 13.4p (2004: 10.9p*). Cash performance was again strong and period-end net cash stood at £299 million(2004: £121 million) before taking account of the consolidation of £247 millionnon-recourse net debt (2004: £238 million) in the PPP road and street lightingconcession companies which are wholly owned by Balfour Beatty. The period-end order book at a record £7.4 billion was up by 14% since June 2004(£6.5 billion) and by 9% since the year end (£6.8 billion). Revenue, including the Group's share of joint ventures and associates, at£2,308 million (2004: £2,026 million), was up by 14% on the first half of 2004. * Including the impact of IAS 32 and IAS 39 on first half 2004 numbers First Half Year in Brief The Board Ian Tyler succeeded Mike Welton as Chief Executive on 1 January 2005. Operations The period saw satisfactory results in most of our businesses and strong orderintake, most notably in the UK utilities market. In the US, management changes,reorganisation and other steps taken to address the poor performance of the lasttwo years have begun to show results, with a significantly improved performancein the civil engineering business. However, losses on a US rail contract and USlitigation settlement costs have impacted first half results. We have continued our review of the Group's strategy and the options availablefor further improving the business mix. Acquisitions The JCM Group, acquired in February 2005, gives Heery, our US project andprogramme management company, a substantial presence in southern California.This follows the purchase of HLM, a recognised leader in the planning and designof US healthcare projects in October 2004. Since the half year, the Group hasacquired Pennine, a UK ground engineering specialist, for £8 million, and agreedto acquire SBB, a German rail signalling company, for €14 million. Pennine willstrengthen the Group's presence in the UK foundations market and SBB willbroaden the range of the services which we offer to Deutsche Bahn in Germany. Metronet The operating and financial performance of Metronet, the London Underground PPPconcession company in which Balfour Beatty has a 20% interest, remainssatisfactory and improvements in existing asset performance have continued. The 30-year capital works programme required to upgrade and renew the asset,made possible only by the adoption of a PPP approach, is enormous in its scopeand complexity. In its early stages of development, some aspects of theprogramme are behind their original schedule. Metronet is confident that anydelays will be recovered as start-up problems are addressed and resolved by thenew management team appointed this year. Hatfield Charges of manslaughter against Balfour Beatty Rail Infrastructure Services(BBRIS) and two of its former employees in respect of the Hatfield rail accidentof October 2000 were dismissed in July of this year. BBRIS has subsequentlyentered a qualified plea of guilty in respect of charges under the Health andSafety At Work Act. The trial of the other accused parties continues. BUSINESS SECTORS Building, Building Management and Services Profits from operations, before exceptional items, in this sector fell from £14million in the first half of 2004 to £8 million in the first half of 2005.Performance was generally good, particularly in Mansell, which won substantialamounts of new work. However, losses were incurred on a small number ofconstruction contracts, largely as a result of raw material cost inflationbetween contract and project execution. Order intake has been very strong, with several major new contracts secured inrecent months, most notably under the North Lanarkshire and Bassetlaw SchoolsPFI projects. Preferred bidder status was also achieved for two new AmbulatoryCare and Diagnostic Centres, a major hospital development scheme in Glasgow.These three contracts will be worth more than £400 million. The substantialorders won by Mansell were largely in the social housing sector and for theUnited States Air Force at Lakenheath in Suffolk. The first phase of University College London Hospital was handed over on timeand budget, as was the major office development project at Waverleygate inEdinburgh. The substantial enabling works for the new Birmingham Hospitalcontinued satisfactorily. A significantly stronger performance is expected in the building sector in thesecond half of the year. Civil and Specialist Engineering and Services Profits from operations, before exceptional items, in the engineering sectormore than doubled to £17 million (2004: £8 million). This was very largely dueto a significantly improved performance from Balfour Beatty Construction Inc inthe US where losses were markedly reduced. Elsewhere in the sector, performancewas steady. Order intake in the engineering sector has been strong during the course of theyear so far. Balfour Beatty Utilities has been extremely successful in itsbidding activities following last year's regulatory reviews in the gas and watersectors. In February, the £380 million contract to renew all the gas mains inGreater Manchester was secured from National Grid Transco. Major new long-termservice contracts were also awarded by Anglian Water, United Utilities, SevernTrent Water, Yorkshire Water and South West Water to a total additional value ofover £700 million. In March, Balfour Beatty Civil Engineering, now in the final stages of wideningthe M25 adjacent to Heathrow Airport, was awarded the £241 million contract towiden the M1 between Junctions 6A and 10. There were some notable successes for Gammon in Hong Kong, including winningcontracts for a major casino and hotel complex in Macau, civil works for theSouthern Link project for the Kowloon and Canton Railway Corporation and forroad maintenance in Hong Kong. The new £132 million M77 motorway and Glasgow Southern Orbital relief roadproject was handed over in April to time and budget. In August, the acquisition was announced of Pennine, the UK ground engineeringspecialist. Balfour Beatty is, through Stent Foundations, already a leader inthe piling sector and this acquisition provides a strong complementary presencein ground engineering. The good progress of the first half in this sector is expected to be maintainedin the second half of the year. Rail Engineering and Services In this sector, profits from operations, before exceptional items, at £20million (2004: £23 million) reflected a sound performance despite reduced UKvolumes following the loss of the maintenance contracts which were taken backin-house by Network Rail in the middle of last year. Profits were enhanced bycontract settlements in UK rail renewals. Performance under the substantial long-term programmes of track renewal beingundertaken for Network Rail and under the London Underground PPP project wassatisfactory, as was that on the West Coast Main Line electrification projectand at Heathrow Terminal 5. Conditions in the US rail market continue to offer challenges to the Group.Problems in respect of a signalling contract continued to impact performanceadversely. In Germany, demand remained depressed, while electrification work in Italycontinued to be buoyant and progress was good on the current phase of the Metrodo Porto contract. Two new projects were secured in Sweden with a total value ofapproximately £50 million. In July, we agreed to acquire SBB, the leading German signal specialist. Thisacquisition will further broaden Balfour Beatty's signalling capability andhelps develop Balfour Beatty Rail Power Systems' strong existing relationshipwith Deutsche Bahn. Performance in the rail sector is expected to remain satisfactory in the secondhalf of the year. Investments and Developments Profits from operations, before exceptional items, in the Investments andDevelopments sector at £8 million were marginally ahead of 2004 (£7 million).Much of the profits derived from assets in this sector are now accounted for asinvestment income. Operating concession performance was satisfactory, includingcontributions from Metronet and Barking Power in line with those of the firsthalf of 2004. Barking Power also received initial distributions from theadministrator of TXU Europe, with Balfour Beatty taking its share of £24million, net of tax, as an exceptional profit. The cash has been retained withinBarking Power. During the first half of the year, concessions for both University CollegeLondon Hospital (Phase 1) and the M77/Glasgow Southern Orbital road becameoperational. In June, the £140 million North Lanarkshire Schools project reached financialclose, followed in mid-July by the £127 million Bassetlaw Schools project innorth Nottinghamshire. Work continues to bring the £520 million BirminghamHospital and the £60 million Birmingham Schools projects, for which BalfourBeatty is preferred bidder, to financial close in the second half of the year.We are also preferred bidder for the £250 million Pinderfields Hospital inYorkshire, for which a new design was recently approved and financial close isexpected in 2006. Balfour Beatty now has 17 operational concessions and has committed some£238 million of equity to the PPP market. The prequalification and biddingpipeline remains strong. Andover Controls Andover Controls contributed £7 million of operating profit in the first half of2004. The company was sold in July 2004 for US$403 million. OUTLOOK Trading prospects in our key markets continue to be positive, although themedium-term outlook in UK and German rail remains unclear. Significant neworders have been won already in the second half of the year and biddingopportunities in most of our markets remain encouraging. Our investment in PPP/PFI is continuing. Two further concessions are likely tohave reached financial close before the year end. Three other major concessionswill be at preferred bidder stage. We anticipate that recovery in US civilengineering will continue and that there will be good progress in the buildingsector in the second half of the year. We have substantial net cash. During the year, we have made good progress indeveloping our strategy with a view to maintaining, in the long-term, oursuccessful trend of profits and earnings growth. We expect our seasonal performance to resume its normal pattern and anticipatethat 2005 as a whole will be a year of good progress. 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 growthpotential. Its partnerships with public and private customers generate secure,sustainable income. Its financial position, with significant net cash and withstrong operating cash flows, offers continuing flexibility to add additionalcapacity and expertise to the business mix and to make appropriate investmentsin PPP and other long-term growth opportunities. * * * * * * * * High resolution photographs are available to the media free of charge atwww.newscast.co.uk (+44 (0)20 7608 1000). A presentation to analysts and investors will be made at JPMorgan Cazenove,20 Moorgate, London EC2 at 10.00 am. A recording of this presentation will be available on www.balfourbeatty.com on17 August 2005. The slides presented to the analysts and investors are also available onwww.balfourbeatty.com. * * * * * * * * The Interim Report for the six months to 2 July 2005 together with theIndependent Review Report of Deloitte & Touche LLP will be posted on 22 August2005 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 2005 dividend of 3.5p net per ordinary share will be paid on 3January 2006 to holders of these shares on the register on 28 October 2005 bydirect credit or, where no mandate has been given, by cheque posted on 29December 2005 payable on 3 January 2006. The ordinary shares will be quotedex-dividend on 26 October 2005. 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 2005 on 1 January 2006 to holders of theseshares on the register on 26 November 2005 by direct credit or, where no mandatehas been given, by cheque posted on 29 December 2005 payable on 1 January 2006.The preference shares will be quoted ex-dividend on 24 November 2005. Group income statementFor the half-year ended 2 July 2005 based on unaudited figures 2005 2004 2004 first half first half year Before Exceptional Before Exceptional Before Exceptional exceptional items exceptional items exceptional items items (Note 6) Total items (Note 6) Total items (Note 6) Total Notes £m £m £m £m £m £m £m £m £m Revenue includingshare of jointventures andassociates 2,308 - 2,308 2,026 - 2,026 4,239 - 4,239Share of revenueof joint venturesand associates 3 (494) - (494) (334) - (334) (749) - (749) Group revenue 1,814 - 1,814 1,692 - 1,692 3,490 - 3,490 Group operatingprofit 24 - 24 29 3 32 58 (2) 56Share of resultsof joint venturesand associates 3 19 24 43 13 - 13 36 - 36 Profit fromoperations 43 24 67 42 3 45 94 (2) 92Investment income 4 29 - 29 26 - 26 56 - 56Finance costs 5 (20) (9) (29) (15) - (15) (28) - (28) Profit beforetaxation 52 15 67 53 3 56 122 (2) 120Taxation 7 (12) 2 (10) (9) (1) (10) (23) (5) (28) Profit for theperiod fromcontinuingoperations 40 17 57 44 2 46 99 (7) 92Profit for theperiod fromdiscontinuedoperations 8 - - - 7 - 7 8 160 168 Profit for theperiod 40 17 57 51 2 53 107 153 260Preferencedividends 5 - - - (7) - (7) (13) - (13)Premium paid onbuy-back ofpreference shares - - - (5) - (5) (6) - (6) Profit for theperiodattributable toequityshareholders 40 17 57 39 2 41 88 153 241 2005 2004 2004 first first year half half pence pence pence Basic earnings per ordinary share- Continuing operations 10 13.4 8.0 17.3- Discontinued operations 10 - 1.6 40.1 13.4 9.6 57.4Diluted earnings per ordinary share- Continuing operations 10 13.2 7.9 17.2- Discontinued operations 10 - 1.6 39.7 13.2 9.5 56.9Dividendsproposed for theperiod 9 3.50 2.85 6.60 Group statement of recognised income and expenseFor the half-year ended 2 July 2005 based on unaudited figures 2005 2004 2004 first first year half half £m £m £mActuarial losses onretirement benefitobligations - - (17)Losses on cash flow hedges (14) - -Fair value revaluation ofPFI/PPP financial assets 19 - -Tax on items taken directlyto equity (1) - 3Exchange adjustments 2 (2) 1 Net income/(expense)recognised directly in equity 6 (2) (13)Profit for the period fromcontinuing operations 57 46 92Profit for the period fromdiscontinued operations - 7 168 Total recognised income forthe period 63 51 247 Attributable to:Equity shareholders 63 44 234Non-equity shareholders - 7 13 63 51 247 Group balance sheetAt 2 July 2005 based on unaudited figures 2005 2004 2004 Notes first first year half half £m £m £mNon-current assetsGoodwill 276 286 279 Property, plant and equipment 156 146 149Investments in joint ventures and associates 13 252 137 189Investments 42 36 42PFI/PPP financial assets 356 255 282Deferred tax assets 64 100 87Trade and other receivables 52 45 41 1,198 1,005 1,069Current assetsInventories 58 53 50Due from customers for contract work 267 228 218Derivative financial instruments 1 - -Trade and other receivables 520 590 563Cash and cash equivalents- PFI/PPP subsidiaries 23 39 30- other 306 197 388 1,175 1,107 1,249 Non-current assets classified as held forsale - 57 - Total assets 2,373 2,169 2,318 Current liabilitiesTrade and other payables (983) (993) (946)Due to customers for contract work (251) (206) (264)Derivative financial instruments- PFI/PPP subsidiaries (14) - -- other (4) - -Current tax liabilities (31) (42) (38)Borrowings- PFI/PPP non-recourse term loans (14) (13) (13)- other (7) (9) (15) (1,304) (1,263) (1,276) Non-current liabilitiesBorrowings- PFI/PPP non-recourse term loans (256) (264) (261)- other - (67) (62)Liability component of preference shares (99) - -Trade and other payables (68) (72) (58)Deferred tax liabilities (2) (1) (2)Retirement benefit obligations (256) (255) (254)Provisions (111) (113) (103) (792) (772) (740)Liabilities directly associated with non-current assetsclassified as held for sale - (14) - Total liabilities (2,096) (2,049) (2,016) Net assets 277 120 302 Capital and reservesCalled-up share capital 213 212 213Share premium account 24 148 150Equity component of preference shares 18 - -Special reserve 178 185 181Other reserves (156) (425) (242) 277 120 302 Equity interests 277 (17) 166Non-equity interests - 137 136 Equity/shareholders' funds 277 120 302 Group cash flow statementFor the half-year ended 2 July 2005 based on unaudited figures 2005 2004 2004 first first year half half Notes £m £m £mCash flows from operating activitiesCash generated from operations 14 (a) 89 109 148Income taxes paid (12) (16) (41)Net cash from operating activities 77 93 107 Cash flows from investing activitiesDividends received from jointventures and associates 6 2 8Acquisition of businesses, net ofcash and cash equivalents acquired (6) 25 (17)Purchase of property, plant andequipment (29) (20) (51)Investment in and loans made tojoint ventures and associates (4) (5) (11)Investment in financial assets (16) (34) (65)Disposal of businesses, net of cashand cash equivalents disposed - 1 217Disposal of property, plant andequipment 4 5 13Disposal of investments 2 - 51Net cash (used in)/from investingactivities (43) (26) 145 Cash flows from financing activitiesProceeds from issue of ordinaryshares 3 1 4Purchase of ordinary shares (1) (1) (2)Proceeds from new loans 2 8 6Repayment of loans (72) (6) (12)Finance lease principal repayments (2) (2) (2)Buy-back of preference shares (9) (18) (20)Ordinary dividends paid (28) (11) (25)Interest received 26 18 47Interest paid (14) (15) (24)Premium paid on repayment of USDollar term loan (9) - -Preference dividends paid (13) (7) (15)Net cash used in financingactivities (117) (33) (43) Net (decrease)/increase in cash andcash equivalents (83) 34 209 Effects of exchange rate changes - 1 (1) Cash and cash equivalents atbeginning of period 406 198 198 Cash and cash equivalents at end ofperiod 14 (b) 323 233 406 Group statement of changes in equityFor the half-year ended 2 July 2005 based on unauditedfigures 2005 2004 2004 first first year half half Notes £m £m £m Total recognised income and expenseattributable to equity shareholders 63 44 234Ordinary dividends 9 (16) (14) (26)Premium paid on buy-back ofpreference shares - (5) (6)Issue of ordinary shares 3 1 4Buy-back of preference shares -carrying value inequity/shareholders' funds (1) (13) (14)Movements relating to share-basedpayments 1 1 4 50 14 196Shareholders' funds at beginning ofperiod 302 106 106Implementation of IAS 32 and IAS 39 1 (75) - -Equity/shareholders' funds at end ofperiod 277 120 302 Notes 1 Basis of presentation The interim financial statements have been prepared for the first time in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), which have been adopted from 1 January 2004. As permitted by IFRS 1 "First-time Adoption of IFRS", the Group has adopted IAS 32 and IAS 39 "Financial Instruments" prospectively from 1 January 2005, and comparative figures have not been restated. These standards have a significant impact on the Group and particularly affect the accounting for the Company's convertible redeemable preference shares, the hedging activities of the Group's PFI/PPP concessions and their income which, in accordance with the International Financial Reporting Interpretations Committee (IFRIC)'s draft interpretations on service concessions, D12 to D14, is determined under IAS 39 to be a financial asset. The adoption of IAS 32 and IAS 39 has reduced the Group's net assets as follows: £m Net assets at 31 December 2004 302 Preference shares - liability element and deferred tax (113) Group derivatives (3) PFI/PPP concessions - derivatives (46) PFI/PPP concessions - financial assets 87 Net assets at 1 January 2005 227 The accounting policies used in the interim financial statements are consistent with those that the Directors intend to use in the annual financial statements, but some changes to these policies may be necessary if there are changes to IFRIC's draft interpretations on service concessions or those standards yet to be endorsed by the European Commission. The accounting policies are set out in Section 5 of the IFRS report published by the Company on 23 June 2005 and are available on its website (at www.balfourbeatty.com/bbeatty/ir/ifrs/). 2 Segment analysis - continuing operations For the period ended 2 July 2005 Building, Civil and building specialist Rail management engineering engineering Investments Performance by and and and and Corporate activity: services services services developments costs Total £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 ventures and associates 2 5 - 12 - 19 Profit from operations before exceptional items 8 17 20 8 (10) 43 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 America Other Total £m £m £m £m Group revenue 1,590 218 6 1,814 Profit from operations before exceptional items 58 (16) 1 43 Exceptional items 24 - - 24 Profit from operations 82 (16) 1 67 For the period ended 26 June 2004 Building, Civil and building specialist Rail management engineering engineering Investments Performance by and and and and Corporate activity: services services services developments costs Total £m £m £m £m £m £m Group revenue 690 586 374 42 - 1,692 Group operating profit 12 5 25 (3) (10) 29 Share of results of joint ventures and associates 2 3 (2) 10 - 13 Profit from operations before exceptional items 14 8 23 7 (10) 42 Exceptional items - - 3 - - 3 Profit from operations 14 8 26 7 (10) 45 Investment income 26 Finance costs (15) Profit before taxation 56 Performance by geographic origin: Europe North America Other Total £m £m £m £m Group revenue 1,518 172 2 1,692 Profit from operations before exceptional items 61 (18) (1) 42 Exceptional items 3 - - 3 Profit from operations 64 (18) (1) 45 For the year ended 31 December 2004 Building, Civil and building specialist Rail management engineering engineering Investments Performance by and and and and Corporate activity: services services services developments costs Total £m £m £m £m £m £m Group revenue 1,468 1,144 800 78 - 3,490 Group operating profit 32 7 45 (9) (17) 58 Share of results of joint ventures and associates 2 9 (1) 26 - 36 Profit from operations before exceptional items 34 16 44 17 (17) 94 Exceptional items - 1 (3) - - (2) Profit from operations 34 17 41 17 (17) 92 Investment income 56 Finance costs (28) Profit before taxation 120 Performance by geographic origin: Europe North America Other Total £m £m £m £m Group revenue 3,107 377 6 3,490 Profit from operations before exceptional items 137 (45) 2 94 Exceptional items 15 (18) 1 (2) Profit from operations 152 (63) 3 92 3 Share of results of joint ventures and associates 2005 2004 2004 first half first year half £m £m £m Share of revenue of joint ventures and associates 494 334 749 Operating profit before exceptional items 21 21 44 Investment income 29 27 56 Finance costs (22) (29) (49) Taxation (9) (6) (15) Share of results of joint ventures and associates before exceptional items 19 13 36 4 Investment income 2005 2004 2004 first first year half half £m £m £m PFI/PPP non-recourse - interest on financial assets 18 18 34 PFI/PPP subordinated debt interest receivable 3 3 9 Other interest receivable and similar income 8 5 13 29 26 56 5 Finance costs 2005 2004 2004 first first year half half £m £m £m PFI/PPP non-recourse - other interest payable 9 10 18 Other interest payable - bank loans and overdrafts 2 2 2 - finance leases - - 1 - other loans 2 3 7 13 15 28 Preference shares - finance cost 7 - - 20 15 28 Exceptional items - premium on buy-back of preference shares 3 - - - net premium on repayment of US Dollar term loan 6 - - 29 15 28 The finance cost and premium on buy-back of preference shares are treated as finance costs under IAS 32 from adoption on 1 January 2005, but were previously treated as appropriations of profit for the period. A preference dividend of 5.375p gross (4.8375p net) per cumulative convertible redeemable preference share of 1p was paid in respect of the six months ended 30 June 2005 on 1 July 2005 to holders of these shares on the register on 27 May 2005. A preference dividend of 5.375p gross (4.8375p net at current tax rate) per cumulative convertible redeemable preference share will be paid in respect of the six months ending 31 December 2005 on 1 January 2006 to holders of these shares on the register on 26 November 2005 by direct credit or, where no mandate has been given, by cheque posted on 29 December 2005 payable on 1 January 2006. These shares will be quoted ex-dividend on 24 November 2005. 6 Exceptional items 2005 2004 2004 first first year half half £m £m £m(a) Credited to/(charged against) profit from operations Group operating profit - cancellation of Network Rail maintenance contracts - 3 7 - pension settlement gain - - 8 - profit on sale of Hong Kong business - - 1 - impairment of goodwill - - (18) Share of results of joint ventures and associates - TXU distributions to Barking Power Ltd 24 - - 24 3 (2)(b) Charged to finance costs - premium on buy-back of preference shares (3) - - - net premium on repayment of US Dollar term loan (6) - - Credited to/(charged against) profit before taxation 15 3 (2) Taxation thereon 2 (1) (5) Credited to/(charged against) profit for the period from continuing operations 17 2 (7) (c) Credited to profit for the period from discontinued operations - profit on sale of operations - - 160 Credited to profit for the period 17 2 153 In accordance with its IFRS accounting policies, the Group has presented and disclosed items of income and expense which are both material and non-recurring as "exceptional items". (a) The exceptional 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. In November 2002, TXU Europe, whose subsidiaries are respectively a shareholder and customer of Barking Power Ltd, entered administration. As a result, the long-term electricity supply contract with a TXU subsidiary was terminated, triggering an entitlement to payment for damages, for which Barking Power Ltd lodged a substantial claim. In December 2004, Barking Power Ltd reached an agreement in principle with the administrators on the value of its claim at £179m. The Group's share of the gain arising from the initial distributions received from TXU was £24m, after charging taxation of £10m. Exceptional items credited to profit from operations in 2004 arose in respect of the resolution of certain matters (first half £3m, full year £7m) previously provided for in 2003 in relation to the cancellation of three Network Rail maintenance contracts; an £8m settlement gain on curtailment of the Railways Pension Scheme; a profit of £1m arising on the transfer of the Group's construction contracts in progress in Hong Kong to the Gammon Skanska Group following the acquisition of a 50% interest in that business; and a goodwill impairment charge of £18m in respect of Balfour Beatty Rail Inc. (b) The exceptional items charged against finance charges in 2005 are the premium of £3m arising on the repurchase for cancellation of 5.6m preference shares at a cost of £9m, and the net premium of £6m arising from the repayment of the US Dollar term loan. (c) The exceptional item credited to profit for the period from discontinued operations in 2004 comprised the gain arising on the disposal of Andover Controls amounting to £160m, after charging taxation of £12m. 7 Taxation 2005 2004 2004 first first year half half £m £m £m UK current tax 6 8 29 UK advance corporation tax - (4) (17) Foreign current tax 2 2 4 Deferred tax 2 4 12 10 10 28 Corporation tax for the period is charged at 36% (2004: full year 27%, but on a "pro forma" basis 32%), representing the best estimate of the weighted average annual corporation tax rate expected for the full financial year. 8 Discontinued operations Andover Controls, sold in July 2004, has been classified as discontinued. The profit for the year from discontinued operations comprises the post-tax results of Andover Controls (2004: first half £7m, full year £8m) and the profit on sale of Andover Controls (2004: full year £160m). 9 Dividends on ordinary shares 2005 2004 2004 first half first half year Per Amount Per Amount Per Amount share share share pence £m pence £m pence £m Proposed dividends for the period: Interim 2004 - - 2.85 12 2.85 12 Final 2004 - - - - 3.75 16 Interim 2005 3.50 15 - - - - 3.50 15 2.85 12 6.60 28 Recognised dividends for the period: Final 2003 - 14 14 Interim 2004 - - 12 Final 2004 16 - - 16 14 26 The interim 2005 dividend will be paid on 3 January 2006 to holders of ordinary shares on the register on 28 October 2005 by direct credit or, where no mandate has been given, by cheque posted on 29 December 2005 payable on 3 January 2006. These shares will be quoted ex-dividend on 26 October 2005. 10 Earnings per share 2005 2004 2004 first half first half year Basic Diluted Basic Diluted Basic Diluted £m £m £m £m £m £m Earnings - Continuing operations 57 57 34 34 73 73 - Discontinued operations - - 7 7 168 168 57 57 41 41 241 241 Premium on buy-back of preference shares - 5 6 Exceptional items (17) (2) (153) Adjusted earnings 40 44 94 m m m m m m Weighted average number of ordinary shares 423.0 428.4 418.7 423.6 419.4 423.6 Earnings per share pence pence pence pence pence pence - Continuing operations 13.4 13.2 8.0 7.9 17.3 17.2 - Discontinued operations - - 1.6 1.6 40.1 39.7 13.4 13.2 9.6 9.5 57.4 56.9 Premium on buy-back of preference shares - 1.3 1.5 Exceptional items (4.1) (0.5) (36.4) Adjusted earnings per share 9.3 10.4 22.5 The calculation of basic earnings is based on profit from continuing operations after charging preference dividends and appropriations arising on the buy-back of preference shares. The weighted average number of shares used to calculate diluted earnings per share has been adjusted for the conversion of share options. No adjustment has been made in respect of the potential conversion of the cumulative convertible redeemable preference shares, the effect of which would have been antidilutive throughout each period. Adjusted earnings per ordinary share, before exceptional items and appropriations arising on the buy-back of preference shares and including the results of discontinued operations, have been disclosed to give a clearer understanding of the Group's underlying trading performance. 11 Acquisitions On 17 February 2005, the Group acquired JCM Group in the USA for an initial consideration of US$9m, deferred consideration of US$1m and costs of US$2m. The provisional fair value of net assets acquired was US$4m and provisional goodwill arising was US$8m. 12 PFI/PPP subsidiaries The Group has a 100% interest in four PFI/PPP concessions through its shareholdings in Connect Roads Ltd, Connect M77/GSO Holdings Ltd and Connect Roads Sunderland Holdings Ltd. The performance of these PFI/PPP concessions (since becoming subsidiaries as appropriate) and their balance sheets are summarised below: 2005 2004 2004 first first year half half £m £m £m Income statement Group revenue 24 42 78 Profit from operations - 1 1 Investment income 18 18 34 Finance costs (9) (10) (18) Profit before taxation 9 9 17 Taxation (3) (2) (5) Profit for the period 6 7 12 Cash flow Profit from operations - 1 1 Decrease in working capital 5 41 6 Income taxes paid (1) (1) (4) Net cash inflow from operating activities 4 41 3 Net cash outflow from investing activities (16) (37) (7) Net cash inflow/(outflow) from financing activities 9 (2) - Net cash (outflow)/inflow (3) 2 (4) Net borrowings at beginning of period/date of acquisition (244) (240) (240) Net borrowings at end of period (247) (238) (244) Balance sheet PFI/PPP financial assets 356 255 282 Derivative financial instruments (14) - - Current and deferred taxation (23) (10) (9) Other net current assets - 23 3 Cash and cash equivalents 23 39 30Related Shares:
Balfour Beatty