TIDMBBY
RNS Number : 6150Z
Balfour Beatty PLC
16 March 2017
BALFOUR BEATTY PLC RESULTS FOR THE FULL-YEARED 31 DECEMBER
2016
16 March 2017
Financial Highlights
-- Order book GBP12.7bn, up 15% (up 4% at constant exchange rates (CER))
-- Underlying revenue GBP8.5bn, up 4% (down 3% at CER)
-- Group returned to profit following two years of losses;
underlying profit from operations (PFO) GBP67m
-- In the second half of 2016 UK construction returned to underlying profitability
-- Strong balance sheet: net cash at GBP173m, underpinned by
GBP1.2bn Investments portfolio
-- Following dividend reinstatement recommended final dividend
of 1.8 pence per share (full year 2.7 pence)
Build to Last Highlights
-- Significantly exceeded 24-month Phase One targets - GBP439m cash in: GBP123m cost out
-- Continued to simplify the Group; exiting non-core assets
-- Upgraded leadership and de-layering of management in UK and US
-- Improving risk management and order book from strengthened governance
-- Increased customer satisfaction
-- Favourable medium and long term market outlook
-- Reiterated Phase Two targets: industry-standard margins by end of 2018
(GBP million unless 2016 2015
otherwise specified)
-------------------------- -------------------------- --------------------------
Underlying(3) Statutory Underlying(3) Statutory
-------------------------- -------------- ---------- -------------- ----------
Revenue(1,2) 8,530 6,923 8,235 6,955
Profit (loss) from
operations(2) (PFO) 67 15 (106) (182)
Pre-tax profit (loss)(2) 60 8 (123) (199)
Total profit (loss) 48 24 (135) (206)
Profit (loss) per
share 7.0p 3.5p (19.8p) (30.1p)
Dividends per share 2.7p -
-------------------------- -------------- ---------- -------------- ----------
2016 2015
---------- ----------
Order book(1,2,3) GBP12.7bn GBP11.0bn
Directors' valuation of Investments
portfolio 1,220 1,244
Net cash - recourse 173 163
Net borrowings - non-recourse (233) (365)
------------------------------------------ ---------- -------------- ----------
Leo Quinn, Group Chief Executive, commented "The transformation
of Balfour Beatty is well underway. We have returned the Group to
profit and significantly exceeded our Build to Last Phase One
targets. We have upgraded leadership, processes and controls while
continuing to invest in the Group's unique strengths. As a result,
we have improved not just the quality of our order book but our
customer satisfaction scores.
"Having simplified the Group, we are focused on our core markets
in the UK and US, where governments are committed to large scale
expenditure on infrastructure.
"All this positions us for future profitable growth. During the
next two-year phase of Build to Last, we expect to achieve
industry-standard margins and over the medium term,
industry-leading performance."
Notes:
(1) including share of joint ventures and associates
(2) from continuing operations
(3) before non-underlying items (Note 8)
Alternative performance measures (APM), including constant
exchange rates (CER), are defined in the section Measuring Our
Performance.
Investor and Analyst enquiries:
Angus Barry
Tel. +44 (0)20 7216 6824
angus.barry@balfourbeatty.com
Media enquiries:
Louise McCulloch
Tel. +44 (0)20 7216 6846
louise.mcculloch@balfourbeatty.com
Investor and Analyst presentation:
A presentation to investors and analysts will be made at Numis
Securities, The London Stock Exchange Building, London EC4M 7LT at
09:00 (UK time) on 16 March 2017. There will be a live webcast of
this presentation on: www.balfourbeatty.com/webcast
2016 FULL-YEAR RESULTS ANNOUNCEMENT
-- GROUP CHIEF EXECUTIVE'S REVIEW
-- RESULTS OVERVIEW AND OUTLOOK
-- BUILD TO LAST
-- DIVISIONAL OPERATING REVIEWS
-- OTHER FINANCIAL ITEMS
-- MEASURING OUR PERFORMANCE
GROUP CHIEF EXECUTIVE'S REVIEW
The Group's results for 2016 demonstrate that the fundamental
changes made under Build to Last are driving positive and
sustainable improvements. Balfour Beatty has returned to profit,
while increasing both the value and the quality of its order book
through disciplined bidding. The GBP200 million cash in and GBP100
million cost out targets have been delivered - enabling the Board
to reinstate the dividend as promised - and were significantly
exceeded by the end of Phase One.
The Build to Last transformation programme launched at the start
of 2015 addresses Balfour Beatty's performance with all
stakeholders - customers and suppliers, employees and
subcontractors, investors and communities. Targets were set against
four objectives: building a business which is Lean, Expert, Trusted
and Safe. The first phase - a 24-month self-help plan - has just
delivered its goals, tackling the root causes of previous poor
performance in order to provide a strong platform for future
profitable growth.
In UK construction, the Group met its year-end target, with 90%
of the legacy projects having reached practical completion and over
70% having reached financial completion. Importantly, the UK
construction business reported an underlying profit from operations
in the second half of the year.
By 2014 Balfour Beatty had become overly complex following more
than a decade of acquisition-led forced growth. There was an
overall lack of leadership and strategic direction. Operationally,
project bidding and delivery lacked standard processes and internal
systems and controls were weak with little focus on cash
management. A federated culture had resulted in layers of
unnecessary cost and a tendency for elements of the business to
compete with one another. Inevitably, performance had deteriorated
not only financially but in terms of customer and employee
satisfaction.
The decisions and actions taken under Build to Last were often,
in themselves, simple and straightforward. However, taken early and
in combination, they are now transforming Balfour Beatty. The
introduction of new standardised disciplines has strengthened
governance and transparency. The upgrade in leadership and the
Group's simplified structure, with shared back office functions,
have enabled the business units to focus on their core markets
while benefiting from a more competitive cost base. Stronger
finance and IT systems have helped drive leaner management of cash
and spending, and better project visibility. Overall, the ability
to forecast, manage and control performance has been greatly
enhanced and customer satisfaction has risen significantly. A more
unified Balfour Beatty culture is beginning to develop, with
increased collaboration starting to leverage the Group's
strengths.
Strategically, this provides the framework for the Group to
enter its second two-year phase of Build to Last with greater
confidence. In each business we will build carefully on the
positive trajectory to date. The Group will apply appropriate
criteria to invest in the people and capabilities of our
Construction Services and Support Services businesses to grow
earnings, and in the assets of our Investments portfolio to grow
overall returns. In this way the Group intends to drive value,
achieving industry-standard margins by the end of 2018 and
thereafter market-leading performance in its third phase of Build
to Last.
RESULTS OVERVIEW AND OUTLOOK
Unless otherwise stated, all commentary in this section, the
Divisional operating reviews and Other Financial Items is on an
underlying continuing operations basis.
Throughout this report, Balfour Beatty has presented financial
performance measures which are used to manage the Group's
performance. These financial performance measures are chosen to
provide a balanced view of the Group's operations and are
considered useful to investors as these measures provide relevant
information on the Group's past or future performance, position or
cash flows. These measures are also used internally to assess
business performance in its budgeting process and when determining
compensation. An explanation of the Group's financial performance
measures and appropriate reconciliations to its statutory measures
is provided in the Measuring Our Performance section.
Non-underlying items and the results from discontinued operations
are the causes of the differences between underlying and statutory
profitability. Additionally, underlying revenue includes the
Group's share of revenue in joint ventures and associates and is
presented on a continuing operations basis.
Group financial summary
In 2016, the Group returned to both underlying and statutory
profitability. On an underlying basis, order book, revenue, profit
from operations, earnings and net cash all improved year-on-year as
the progress made with Phase One of Build to Last translated into
improved financial metrics.
Underlying revenue increased by 4% to GBP8,530 million (2015:
GBP8,235 million). Underlying revenue at constant exchange rates
(CER) fell by 3% as the Group continued with its more disciplined
and selective approach to bidding. Statutory revenue, which
excludes joint ventures and associates, was GBP6,923 million (2015:
GBP6,955 million).
Construction Services underlying revenue was up 7% at GBP6,852
million (2015: GBP6,388 million) as growth in the US offset an
expected decline in the UK; underlying revenue at CER fell by 1%.
Support Services underlying revenue declined 12% at GBP1,103
million (2015: GBP1,259 million) due to the phasing of contract and
regulatory cycles.
The Group returned to profitability in 2016 with underlying
profit from operations at GBP67 million (2015: GBP106 million
loss). Statutory profit from operations improved from a loss of
GBP182 million to a profit of GBP15 million primarily driven by the
increase in underlying profit and a reduction in non-underlying
costs.
Infrastructure Investments continued to deliver excellent
results with underlying profit from operations of GBP89 million
(2015: GBP132 million), including the benefit of GBP65 million of
profits from investment disposals (2015: GBP95 million). Support
Services rebounded to more normal levels, compared to the prior
year, with underlying profit from operations of GBP34 million
(2015: GBP24 million). Underlying loss from operations in
Construction Services reduced to GBP23 million (2015: GBP229
million loss), where losses in the UK of GBP64 million (2015:
GBP187 million loss) were only partially offset by profits in the
US of GBP33 million (2015: GBP22 million loss).
The half-yearly contribution of the Group's GBP67 million
underlying profit from operations was GBP5 million in the first
half, with GBP62 million in the second half of the year.
Infrastructure Investments, Support Services and Construction
Services all reported underlying profit from operations in the
second half of 2016, with UK construction continuing its positive
trajectory as it returned to underlying profitability, a modest
GBP2 million in the second half of the year.
Net finance costs decreased to GBP7 million (2015: GBP17
million) predominantly due to a GBP19 million gain on foreign
currency deposits. The taxation charge on underlying profits
increased to GBP12 million (2015: GBP11 million).
Underlying profit after tax for the year at GBP48 million (2015:
GBP135 million loss) represents a material improvement over the
previous year, primarily driven by the improvement in Construction
Services. Total statutory profit after tax for the year was GBP24
million (2015: GBP206 million loss).
The order book increased by 15% to GBP12.7 billion (2015:
GBP11.0 billion), up 4% at CER, despite the more disciplined and
selective approach to bidding. Additionally, the quality of the
order book improved as the business increased bid margin thresholds
and focused on jobs where the Group can deliver value.
The improved order book was predominantly due to Construction
Services at GBP9.6 billion (2015: GBP7.9 billion), with increases
in all material geographical regions: UK construction up 11%; US
construction up 10% at CER; and Far East construction up 14% at
CER. The Support Services order book was stable at GBP3.1 billion
(2015: GBP3.1 billion).
Earnings per share
Underlying earnings per share from continuing operations was 7.0
pence (2015: 19.7 pence loss), which along with a non-underlying
loss per share from continuing operations of 7.0 pence (2015: 10.5
pence loss) resulted in earnings per share from continuing
operations of nil pence (2015: 30.2 pence loss). Statutory earnings
per share was 3.5 pence (2015: 30.1 pence loss).
Cash flow performance
The total cash movement in the period resulted in a GBP10
million increase to the Group's net cash position, excluding
non-recourse net borrowings, to GBP173 million. This compares to a
decrease in the Group's net cash position of GBP56 million in 2015.
The increase in net cash was driven by proceeds from investment
disposals and favourable US dollar foreign exchange movements,
partly offset by new investments in infrastructure assets, negative
operating cash flows, working capital movements and pension deficit
payments.
Operating cash flows, before movements in working capital and
pension deficit payments, improved to an outflow of GBP58 million
(2015: GBP247 million outflow). This reduced outflow is
predominantly as a result of the improved financial performance
from Construction Services. Working capital had an outflow of GBP48
million (2015: GBP178 million inflow) and pension deficit payments
were an outflow of GBP41 million (2015: GBP66 million). Total cash
used in operations before tax was GBP147 million (2015: GBP135
million), a decline of GBP12 million compared to the prior year.
Currency translation differences on net cash generated a positive
movement of GBP30 million (2015: GBP12 million negative).
The total cash movement in the period excluding Parsons
Brinkerhoff (PB) proceeds resulted in a GBP1 million increase in
the Group's net cash position. This represented an GBP82 million
improvement on 2015, and a GBP439 million improvement on 2014 - an
excellent performance against the Build to Last Phase One target of
GBP200 million cash flow improvement versus 2014.
Cash flow performance (GBP million) 2016 2015
------------------------------------- ------- --------
Operating cash flows(1) (58) (247)
Working capital (48) 178
Infrastructure Investments
- Disposal proceeds 189 145
- New investments (65) (102)
Pension deficit payments (41) (66)
Other 33 36
Cash inflow (outflow) 10 (56)
------------------------------------- ------- --------
Cash inflow (outflow) excl. PB net
proceeds 1 (81)
------------------------------------- ------- --------
Opening net cash(2) 163 219
Movements in the year 10 (56)
------------------------------------- ------- --------
Closing net cash(2) 173 163
------------------------------------- ------- --------
(1) before pension deficit payments
(2) excluding infrastructure concessions (non-recourse) net
debt
On a statutory basis the Group reported net debt of GBP160
million at 31 December 2016 (2015: GBP300 million net debt)
Working capital
In 2015, there were large working capital inflows of GBP178
million as a result of the focus on all areas of working capital
management and risk contingencies booked against legacy contracts.
In 2016, the cash outflow on legacy contracts has been lower than
anticipated, which resulted in a lower than expected working
capital outflow of GBP48 million. The Group is still in a
materially favourable (negative) working capital position following
the completion of Build to Last Phase One.
The continued focus on reducing inventory and work in progress
(WIP) balances generated a working capital inflow of GBP42 million.
Movements in the Group's due from / due to construction contract
customers' balances, which reflect the net unbilled contract
position and traded profit and loss for each individual
construction contract, generated a working capital inflow of GBP36
million. This inflow was mainly derived from an improvement in
billing, offset by an outflow of cash expenditure on contract
losses from prior years.
Trade and other payables generated a GBP60 million outflow
partially as a result of the expected cash outflows on historical
loss-making jobs. Trade and other receivables generated an outflow
of GBP134 million, due to more efficient billing of construction
contract amounts, an increase in mature projects leading to higher
retentions and also a reflection of the large receipts into the
business in December 2015.
Provisions generated a working capital inflow of GBP68 million
primarily due to additional provisions taken on defects, health and
safety breaches and industrial disease related liabilities.
Including the impact of foreign exchange and disposals in the
year, favourable working capital increased to GBP894 million at
December 2016 (2015: GBP890 million).
Working capital flows 2016 2015
(GBP million)
----------------------------- -------- --------
Inventory and WIP 42 27
Construction contract
balances 36 308
Trade and other payables (60) (236)
Trade and other receivables (134) 74
Provisions 68 5
----------------------------- -------- --------
Working capital (outflow)
inflow(1) (48) 178
----------------------------- -------- --------
(1) Excludes impact of foreign exchange and disposals
Net cash/borrowings
The Group's net cash position at 31 December 2016, excluding
non-recourse net borrowings, was GBP173 million (2015: GBP163
million). Average net debt during the year at GBP46 million (2015:
GBP3 million net cash) was ahead of expectations. Non-recourse net
borrowings, held in wholly-owned infrastructure concessions,
reduced to GBP233 million (2015: GBP365 million). The balance sheet
also includes GBP100 million (2015: GBP98 million) for the
liability component of the preference shares. Statutory net debt at
31 December 2016 was GBP160 million (2015: GBP300 million).
Outlook
Build to Last is a long-term transformation programme designed
to deliver superior returns for all stakeholders from a Group which
is Lean, Expert, Trusted and Safe.
As a result of the actions taken during the 24-month self-help
phase, Balfour Beatty now has a solid platform on which to build.
The Group exceeded its Phase One financial targets with GBP439
million cash in (Target: GBP200 million) and GBP123 million cost
out (Target: GBP100 million).
Over the next 24 months, Phase Two, the Group expects each of
its Construction Services and Support Services businesses to
continue their positive trajectory to reach industry-standard
margins.
Specifically, for these earnings-based businesses the underlying
profit margin from operations targets for Build to Last Phase Two
are as follows:
UK construction 2%-3%
US construction 1%-2%
Support Services 3%-5%
For Investments, which is an asset-based business, during Phase
One there were 20 partial or full disposals from the portfolio, all
of which were at or above the Directors' valuation. The liquidity
which this provided to the Group was an integral part of the
self-help in Phase One of Build to Last.
As Balfour Beatty's financial performance continues its positive
trajectory, the Group will have greater flexibility over the timing
of the sale of infrastructure assets. During Phase Two of Build to
Last, the Group will continue to sell these assets timed to
maximise value to shareholders. There are not expected to be
material disposals in the first half of 2017.
The trading environment in the Group's core UK and US markets
remains positive. In the UK, government policy is helping to drive
a strong pipeline of major infrastructure projects in transport and
energy. In the US, the new administration has made infrastructure
one of its key priorities. This positive market backdrop supports
the Group's commitment to be more selective, targeting contracts
with improved profitability and cash flow dynamics.
In Phase Three (2019+), Balfour Beatty aims to command a premium
to industry-standard margins as market-leading strength should be
matched by market-leading performance.
Dividend
The Board took the decision to suspend the dividend in 2015, to
ensure balance sheet strength was maintained during initial stages
of Build to Last. Following the demonstrable progress made by the
Group in the first year of the transformation programme and in the
expectation of further solid and measurable improvements, it was
decided to reinstate the dividend at an appropriate level in
2016.
Following the 0.9 pence per share dividend declared at the half
year, the Board is recommending a final dividend of 1.8 pence per
share, giving a total recommended dividend for the year of 2.7
pence per share. The Board recognises the importance of dividends
to shareholders and anticipates a progressive dividend policy going
forward.
BUILD TO LAST
Balfour Beatty launched its Build to Last transformation
programme in early 2015 as a framework to drive continuous
improvement for all stakeholders against four goals - Lean, Expert,
Trusted and Safe - as measured by cash flow and profits from
operations, employee engagement, customer satisfaction and Zero
Harm.
Phase One consisted of 24 months self-help. Rapid action was
taken to remove management layers, upgrade leadership and
strengthen governance within a simplified Group structure. In Phase
Two (2017-2018) Balfour Beatty will return to industry-standard
margins and in Phase Three deliver a Group with market-leading
strengths and performance.
During Phase One, Balfour Beatty made significant progress on
its four goals:
Lean
-- Deliver value to customers by improving operational efficiency and eliminating waste right through the supply
chain.
-- The Group metric is cash flow and underlying profit from operations - in Phase One, delivering GBP200 million of
cash in and GBP100 million of cost out in the first 24 months.
Group net cash at 31 December 2016 was GBP173 million, a GBP10
million improvement on 2015.
Overall in Phase One the Group exceeded the GBP200 million cash
in target: cash flow in 2016 was GBP439 million better than in
2014, excluding the proceeds from the sale of Parsons Brinckerhoff.
This is the result of the continuing focus on tight management of
cash and working capital, improvements to financial systems and
controls, employee training and aligning incentives to deliver
better performance.
A new Group financial consolidation system has been introduced
and the process to transfer data from the ERP system to the
consolidation system has been automated, building on the progress
made in 2015. Improved weekly cash flow performance reconciliations
are leading to significant improvement in the business' ability to
forecast cash flow, enabling more effective management of draw-down
of the Company's debt facility.
Further progress was made on the GBP60 million of annualised
cost savings achieved in 2015. By the end of 2016, GBP123 million
of annualised savings (compared to 2014) had been achieved,
exceeding the GBP100 million target. The business continues to
exploit opportunities to make further savings through
standardisation and leaning out processes.
Savings have been driven by simplifying the business, including
creating unified back office operations, eliminating waste,
standardising working practices and moving the culture of the
organisation to encourage and reward efficient practices. During
2016:
-- The US construction and infrastructure businesses have been
brought together under a single leader with back office functions
(IT, legal, finance etc.) unified to provide high-quality,
efficient support (in a similar model to that deployed in the UK
during 2015) and leadership across the business has been
upgraded;
-- The IT service which had previously been delivered though a
sub-optimal outsourcing agreement was successfully brought back
in-house. This continues to deliver a more responsive and efficient
IT operation with annualised savings of approximately GBP5
million;
-- The Site Mobilisation Hub was introduced for all UK contract
start-ups in the summer. By centralising and standardising this
process, resources can be efficiently redeployed from one job to
the next. This reduces wastage, cost and delays caused by sites not
being operationally ready. At the same time, project managers are
freed up to focus on their project rather than site set-up. The Hub
has engaged with 445 projects, of which 45 mobilisations have now
been delivered, all on time and to budget or better, achieving
significant savings;
-- Framework agreements have been developed with a shortlist of
preferred design consultants with the express aims of strengthening
business relationships and providing greater consistency in the way
that design services are provided, reducing cost and delivering
greater value to customers;
-- The US strategic procurement group established over 40
national agreements with suppliers selected on their ability to
deliver superior products and services to all major US geographies,
as well as offer highly competitive pricing; and
-- Further progress has been made in rationalising the property
portfolio, bringing business units together in shared offices, thus
aiding collaboration, reducing floor space requirements by 35% and
providing more productive working environments. Over the first two
years of Build to Last, UK property costs have been cut by
approximately 25%.
The Group has made considerable progress in simplifying its
portfolio with the disposal of non-strategic businesses, in order
to focus on its core markets:
-- Balfour Beatty Infrastructure Partners, an independently
managed infrastructure fund business focusing on secondary
opportunities, was disposed of to Wafra Investment Advisory Group,
Inc;
-- Balfour Beatty Investments' sole project in Australia was
sold and Balfour Beatty staff and pipeline transferred to
Infrared;
-- Balfour Resource Group, a healthcare facilities planning
consultancy that became part of Balfour Beatty through the Centex
acquisition, was sold to management;
-- The sale of Balfour Beatty's share of its Indonesian joint
venture, Balfour Beatty Sakti, to its joint venture partner;
-- In early 2017, Balfour Beatty's entire share of its Middle
Eastern joint ventures, Dutco Balfour Beatty and BK Gulf, were sold
to its joint venture partner; and
-- Following completion of the sole rail maintenance contract in
Chile, the decision was taken to wind up that business.
Expert
-- Ensure that Balfour Beatty is attracting, retaining and
motivating employees to enable it to offer customers the best
engineering, design, project management and delivery
capabilities.
-- The Group metric is average employee satisfaction.
Quality of leadership is the number one factor in driving a
world class organisation. During 2016, the Group built on its
progress in 2015 by further upgrading the quality of senior
management, particularly through promotion.
In addition to the unification of the US businesses described in
the previous section: in the UK, Engineering Services and
Engineering Construction were brought together under the banner of
Balfour Beatty Kilpatrick and a unified leadership; and a new
leadership team was put in place in the UK Power business.
The model of centralised support functions (HR, IT, finance
etc.) as first rolled out in the UK continues to provide higher
service levels to the business compared to the previous devolved
model, whilst continuing to outperform with respect to
re-engineering process and reducing cost.
During the year, further work has been completed to build
communities of practice for key skills across the business. These
communities allow the sharing of best practice across the Group and
provide opportunities for career development to the staff
involved.
-- A Group-level Project Management Academy has been developed, aligned to international standards through an
accredited training programme, to provide a common approach to professional development and practice. This
initiative provides clarity on the competence level required for each project manager (PM) role and provides an
Assignment Database to match PM competence to contract risk and complexity, greatly enhancing the probability of
a successful outcome for customers.
-- Building on the success of the Project Management Competency Assessment carried out across all levels of Balfour
Beatty's project management employees, work is underway to extend the assessment process into several key
Alliances.
-- A new strategic approach to bidding and winning key business has been introduced to co-ordinate major
opportunities which straddle business units, in order to ensure that Balfour Beatty has a unified and compelling
offer. Business Acquisition Method training has been rolled out to 200 employees across the UK and US businesses,
introducing a common and systematic approach to winning business. The new training programme boosts estimating
skills and improves the quality of proposals, reducing the risk of underbidding.
-- A similar focus on the commercial expertise within the business has enabled better sharing of best practice and a
forum for senior commercial professionals to identify training and development opportunities. As a result an
extensive programme of training has commenced to give the Commercial team the skills to work more productively
with customers on more collaborative forms of contract.
During 2016, Balfour Beatty made significant progress towards
becoming a digitally empowered business. Development of staff
capabilities such as the training of six new drone pilots, a
digital surveying team with full laser scanning service, a high-end
visualisation team and a significant increase in BIM support have
all led to an increase in quality, a leaner approach and a safer
working environment. As a result of Balfour Beatty's investment in
BIM, in 2016 it became one of the first companies to receive the
British Standards Institute's BIM Kitemark, an accolade only three
other companies have achieved. The Group also achieved another
first during the year by winning the V3 Digital Technology Leaders
Award for best Public Sector Project in partnership with
Southampton Council.
2016 also saw global collaboration in the fields of Virtual
Reality and construction robotics, utilising skills from the UK, US
and Hong Kong. Both technologies are vital to the future of Balfour
Beatty as an industry leader.
Training and retaining staff remain critical to the long-term
success of Balfour Beatty and is therefore a central tenet of Build
to Last. A new redeployment tool was introduced during the year to
identify appropriate opportunities for staff when their current
project concludes, keeping skilled workers in the business and
reducing redundancy and recruitment costs.
Two leadership development programmes have been launched, with
50 delegates in 2016. One works with the leadership teams to
actively improve and measure the culture and climate they create in
their business. The second identifies high-potential employees to
join a 12-month programme to develop their management skills and
capabilities and their transition to leadership roles.
Skills shortages within construction have been a challenge for
several years. The UK's decision to leave the European Union with
the potential for reduction in free movement of people is likely to
exacerbate the situation at a time when demand for skilled workers
will increase given the pipeline of projects due to start in the
coming years.
Balfour Beatty believes that employers are best placed to
determine and train their required future capabilities and
therefore must take the lead by making a long-term commitment to
invest in the next generation workforce. For this reason, Balfour
Beatty belongs to and is sponsoring The 5% Club, an employer-led
organisation whose members commit to striving to achieve 5% of
their UK workforce in 'earn and learn' positions within five years
of joining.
During 2016 Balfour Beatty recruited 114 apprentices and 110
graduate trainees. The percentage of the workforce in 'earn and
learn' positions at year end stood at 4.3%, a slight reduction on
the 2015 number as a result of an unusually high level of
recruitment to these positions in the previous two years, where
participants have now been appointed into mainstream roles. Balfour
Beatty's aspiration remains to reach 5% or above.
My Contribution is the mechanism which directly engages all
staff in Build to Last by enabling employees to suggest and drive
changes in the business to help deliver on Build to Last's Lean,
Expert, Trusted and Safe goals. In 2016, 3,114 ideas for business
benefits were logged by Balfour Beatty employees, of which 417 were
progressed as projects and delivered with financial savings of
GBP19 million and over 230,000 hours of time savings.
For the second year a company-wide employee engagement survey
was carried out. This is the first time that all the necessary
questions have been asked which allows for Balfour Beatty's
performance to be benchmarked against other businesses by Best
Companies. Balfour Beatty's employee engagement score was 626.4,
which is regarded by Best Companies as demonstrating good levels of
employee engagement. Response rate for the survey at 67% was up on
the 2015 survey (61%). The Group employee satisfaction score for
2016 was 58% (2015: 60%).
Trusted
-- Be the construction partner of choice for customers and supply chain by delivering on promises.
-- The Group metric is customer satisfaction.
Customer satisfaction is achieved by doing what we say we will
do. Balfour Beatty continued to win landmark contracts in all its
selected markets with the order book up 15% (4% at CER) at GBP12.7
billion.
During 2015, the 8-Gated Lifecycle was introduced across Balfour
Beatty. In 2016, the framework has been further refined with the
addition of a 'make or buy' decision step to promote greater use of
internal capabilities. Internal reviews of the bidding Gates (1-4)
across all UK and US business units demonstrate compliance with all
new processes. As a result of the early qualification Gates (1-2)
there has been a sharp reduction in the value of work tendered and
lost. The UK win rate for 2016 was almost double that of 2015.
To further enhance the control and rigour of the Gated
Lifecycle, a secure web-based platform effectively digitises the
governance and document control through all stages and gates of
acquiring contracts and delivering projects. This Digital Briefcase
was released at the end of 2016 and is now installed across UK
business units with over 500 key users and approvers trained and
utilising the functionality successfully.
Within the industry there continues to be a strong dependence on
joint ventures to execute major projects. A key area of focus going
forward will be to ensure the Group can exercise the same degree of
governance and control in these instances as it is gaining through
its Build to Last transformation on sole projects.
The rationalisation, upgrade and standardisation of the ERP
systems continues. The use of data analytics and automated risk
scoring is now fully embedded in both UK Regional Construction and
Balfour Beatty Kilpatrick where the majority of legacy losses have
previously been recorded. Following a successful pilot in 2016 this
is now being rolled out across buildings and civils in the US in
conjunction with a simplification of their associated legacy system
architecture. This now provides management with consistent and
timely information in regards to project performance (Project on a
Page) based on an increasingly broadening balanced scorecard of
metrics. Looking forwards, with further planned improvements and
development, it is expected that integrating multiple key
operational data sources in 2017 will maximise the ability to
influence project performance at the earliest possible stage.
A major review of the Business Management System (BMS) was
undertaken in 2016 to create a single refreshed and improved system
across all UK businesses. The BMS provides guidance and rules about
how Balfour Beatty delivers tasks. The new system includes offline
access and simplified access to information. The BMS will continue
to be improved throughout the year and will define how the Group
manages and delivers activities.
During the year 2,107 customer satisfaction reviews were carried
out, primarily in the UK. The Group customer satisfaction average
was 91% (2015: 82%). Scores in the UK were generally significantly
higher than those in the US.
Safe
-- Ensure the health and safety of everyone who comes into contact with Balfour Beatty's activities.
-- The Group metric is Zero Harm.
Many of the activities carried out by Balfour Beatty can be, by
their nature, potentially dangerous. It is therefore essential that
the health, both physical and mental, and safety of employees, and
those who come into contact with Balfour Beatty, including
subcontractors and the general public, are always Balfour Beatty's
first priority.
Health and Safety takes a risk-based approach to identify and
prioritise action plans, focused on communicating the Zero Harm
vision, leadership, learning and sharing, clear co-ordinated
governance, supply chain engagement, health and safety by design
(including offsite modular assembly), simplifying and improving
management systems and processes, training and competence,
behavioural safety, innovation, recognition and reward, clear
performance indicators and locally sponsored initiatives. Group
initiatives are proactive and evidence based and include quarterly
campaigns and Group-wide stand downs. In 2016 fatal risk groups
were reviewed with leadership at managing director level and
initiatives taken to increase skills and awareness, improve
performance and promote employee and supply chain engagement.
Each week senior management report and consider any accident or
near misses that have occurred and a weekly report, available to
all employees, shares safety best practice as well as reporting on
significant incidents and learning which can be drawn from Balfour
Beatty or elsewhere in the industry.
In May 2016, a Balfour Beatty company was sentenced in
connection with its conviction and guilty plea to breaches of
Section 3 of the Health & Safety at Work Act 1974 and related
health and safety regulations. The HSE prosecution was in relation
to a fatality on the Heysham Power Station project in Lancashire on
14 April 2010. Balfour Beatty received a fine of GBP2.6 million.
The fine was judged on the basis of the new sentencing guidelines
published by the Department of Justice and demonstrates the
increasingly heavy financial consequences for failures to meet the
necessary safety and environmental standards.
Safety is monitored through a combination of leading and lagging
performance indicators. The Group Lost Time Incident Rate excluding
international joint ventures fell to 0.22 (2015: 0.24), however,
very regrettably there were a number of serious incidents which
resulted in a total of five fatalities, one in each of the UK and
US and three in the Far East.
DIVISIONAL OPERATING REVIEWS
CONSTRUCTION SERVICES
Financial review
Construction Services made significant progress in 2016. The
order book increased from GBP7.9 billion to GBP9.6 billion.
Underlying revenue increased from GBP6.4 billion to GBP6.9 billion,
and although the business still reported underlying losses from
operations of GBP23 million the trajectory is positive.
Progress continued to be made on returning the business to
profitability, with the second half seeing a GBP37 million
underlying profit, after the loss of GBP60 million in the first
half. Included within the GBP37 million profit in the second half,
UK construction continued its recovery as it returned to GBP2
million underlying profit from operations.
Despite the increase in order book, the construction business
continued to be more selective in the work that it bid, through
increased bid margin thresholds, improved risk frameworks and
better contract governance. Following the introduction of the Gated
Lifecycle there has been a much narrower range of outcomes as a
direct result of the tighter, more effective control environment.
In addition, there has also been a shift towards a lower risk
contract portfolio. Approximately 45% of the value of new UK
regional orders won in 2016 were two-stage tender projects. This
represented a material increase on 2015 with two-stage tenders
generally replacing standard project contracts.
Construction 2016 2015
Services
------------------- ------------------------------- -------------------------------
Rev(1,2) PFO(2) Order Rev(1,2) PFO(2) Order
book(1,2) book(1,2)
-------------------
GBPm GBPm GBPbn GBPm GBPm GBPbn
------------------- --------- ------- ----------- --------- ------- -----------
US 3,427 33 5.5 3,097 (22) 4.1
UK 1,894 (64) 2.1 2,024 (187) 1.9
Rail 249 (1) 0.2 274 (5) 0.2
Overseas JVs
- Far East 967 11 1.5 796 19 1.2
- Middle East 315 (2) 0.3 197 (34) 0.5
------------------- --------- ------- ----------- --------- ------- -----------
Underlying 6,852 (23) 9.6 6,388 (229) 7.9
Non-underlying(3) 153 (34) 0.0 209 (51) 0.2
------------------- --------- ------- ----------- --------- ------- -----------
Total 7,005 (57) 9.6 6,597 (280) 8.1
------------------- --------- ------- ----------- --------- ------- -----------
(1) including share of joint ventures and associates
(2) from continuing operations
(3) non-underlying items (Note 8)
A reconciliation of the Group's performance measures to its
statutory results is provided in the Measuring Our Performance
section.
Underlying revenue increased by 7% to GBP6,852 million (2015:
GBP6,388 million), 1% decrease at CER. Underlying revenues in the
UK fell by 6% as forecast, as improved bidding disciplines and
selectivity adopted in 2015 resulted in lower levels of contracts
in previous problem areas. This was more than offset by an
underlying revenue increase of 11% in the US (2% decrease at CER)
and a 21% increase in the Far East (8% increase at CER).
The underlying loss was GBP23 million (2015: GBP229 million) as
underlying profits in the US (GBP33 million) were offset by losses
in the UK (GBP64 million). The losses in the UK, caused by
historical contracts which are still being traded through to
completion, are substantially lower than the prior year, and in the
second half of 2016, UK construction continued its positive
trajectory as it delivered an underlying profit from operations of
GBP2 million.
The order book increased by 22% (5% at CER) due to growth in
both the UK and the US core markets. The UK order book increased by
11% to GBP2.1 billion, despite the more disciplined and selective
approach to bidding. The US order book increased by 34% (10% at
CER) due to strong levels of order intake, such as the Caltrain
rail corridor electrification contract. The Far East order book
increased by 25% (14% at CER) with a number of notable awards
during the year including the redevelopment of Somerset House, Hong
Kong.
Across the construction portfolio there remain a small number of
long-term and complex projects where the Group has incorporated
significant judgements over contractual entitlements. The range of
potential outcomes could result in a materially positive or
negative swing to profitability and cash flow. In the UK, the
majority of these contracts are within the Major Projects business
unit. Outside the UK, the Group still has a number of significant
contracts in Hong Kong where the range of potential outcomes could
result in a materially positive or negative swing to
profitability.
UK
The UK construction business is organised into two business
units consisting of:
-- Major Projects: focused on complex projects and ground engineering services in key market sectors such as
transportation, heavy infrastructure and energy.
-- Regional: private and public, civil engineering, mechanical and electrical engineering and building, providing
customers with locally delivered, flexible and fully integrated civil and building services.
During the year, the business continued to simplify. Engineering
Construction and Engineering Services (mechanical and electrical
engineering) merged in August 2016, with the new business rebranded
as Balfour Beatty Kilpatrick, led by a new managing director and
standardised on a single ERP system. Within Regional, the number of
live projects continued to fall from around 400 at December 2015 to
around 250 by December 2016. Over 150 of the current live projects
have been through the Gated Lifecycle process.
Underlying revenue in the UK fell by 6% to GBP1,894 million
(2015: GBP2,024 million), predominantly due to a decline in the
Regional construction business. The UK business continued to be
more selective in the work that it bid, through increased bid
margin thresholds, improved risk frameworks and better contract
governance. The Group qualified out nearly GBP7 billion worth of
projects in 2016, whilst at the same time almost doubling the win
rate.
Despite the focus on improving the quality of new orders, the UK
order book increased by 11% to GBP2.1 billion (2015: GBP1.9
billion) following a number of notable awards including: a contract
to widen a 10-mile stretch of the existing A14; a contract to
upgrade baggage screening and handling systems for Heathrow
airport; the main construction works for The Madison Tower, a
53-storey residential building in Canary Wharf; and construction of
engineering and training facilities at RAF Marham in Norfolk.
The underlying loss from the UK construction business was GBP64
million (2015: GBP187 million), representing an improvement from
the prior year. The loss in the period was caused by three main
factors: additional losses incurred on historical contracts; lower
overhead absorption due to the lower revenue base; and newer
projects not being progressed to a stage where it is appropriate to
begin to recognise gross margin.
There is a positive trajectory, with the GBP64 million
underlying loss from operations in 2016 split between a GBP66
million loss in the first half and a GBP2 million profit in the
second half of the year.
The business is continuing to manage historical problem
contracts through to completion. At the 2015 half year 89
historical contracts were identified that had a material negative
impact on profitability and cash. As at the end of December 2016,
and in line with previous guidance given, 90% of these projects
were at practical completion (60% at end December 2015) with over
70% at financial completion. Four of the remaining nine contracts
are expected to reach practical completion in 2017, with the
remainder in 2018.
The Group is working constructively with industry bodies and the
UK Government to identify and manage any direct challenges caused
by the UK's exit from the European Union. At this stage Balfour
Beatty has not seen an impact on the building market; however the
Group remains vigilant to respond to any changes in market
conditions.
In 2016, the Major Projects business successfully completed the
complex engineering transformation of the former London Olympic
stadium, to allow West Ham United FC to start using the
multi-purpose venue in time for the new football season. Work was
also completed on the upgrade to Junction 30 of the M25 in
Essex.
On Crossrail, Balfour Beatty's three major projects: C510
(Liverpool Street and Whitechapel Station tunnels); C512
(Whitechapel Station); and C530 (Woolwich Station) all made
significant progress during the year. At the Thames Tideway Tunnel
work has commenced on the 6-kilometer 'West' section which runs
from Acton to Wandsworth. In Highways, material ongoing work
includes the conversion of the M3 Motorway (J2-J4) into a Smart
Motorway and the construction of dual carriageways for the A21
between Tonbridge and Pembury, the Aberdeen Western Peripheral
Route and the Norwich Northern Distributor Road.
Notable new contract awards in the period include a GBP146
million construction package to widen a critical and complex
10-mile stretch of the existing A14 and a contract to build an
energy from waste facility for Gloucestershire County Council.
Included within awarded but not contracted (ABNC), the Highways
business has been selected to deliver a Smart Motorway package to
upgrade sections of the M6 and M4 (J3-J12). Additionally, a
contract from Highways England for the construction of a proposed
lorry area near the M20, worth up to GBP130 million, has been
awarded but is currently under consultation.
The Major Projects business continues to pursue a number of
major infrastructure opportunities across core transportation and
energy markets. Over the next few years High Speed 2 (HS2) rail,
new nuclear power stations at Hinkley Point C and Wylfa and the
third runway at Heathrow airport will all contribute to the
Government's investment in infrastructure target, which is forecast
to rise to over 1% of GDP by 2020-21.
The proposed HS2 rail route will connect London, Birmingham,
Leeds and Manchester with total estimated costs of over GBP50
billion. Balfour Beatty and VINCI are in a joint venture pursuing
work on HS2, utilising the expertise acquired by both companies on
High Speed 1, VINCI's involvement on the EUR8 billion
Tours-Bordeaux high-speed rail project in France, and Balfour
Beatty's extensive work on transport networks across the UK and
overseas. Balfour Beatty VINCI were unsuccessful in tendering for
the enabling works packages during the year, but the joint venture
has recently tendered for four major civil engineering works
packages (two in the Central section, two in the North section),
with contract awards expected in 2017. In addition, the highways
market continues to provide good growth opportunities following the
Government's commitment of GBP15 billion to Highways England in
order to deliver the first Roads Investment Strategy.
The Regional business is organised into four regions and Balfour
Beatty Kilpatrick, following the merger of Engineering Construction
and Engineering Services in August 2016.
-- Regional Construction: four regions (Scotland, North & Midlands, South and London) providing public and private
customers with locally delivered, flexible and fully integrated civil and building services.
-- Balfour Beatty Kilpatrick: heavy mechanical and electrical (M&E) installations and building services.
As a result of the focus on bidding for contracts with increased
margins and more favourable contract terms, the Regional business
is now focused on fewer, larger contracts and continues to reduce
its exposure to contracts under GBP5 million. This allows the
business to focus on projects with better pricing and risk
dynamics, but also improves the span of control as it operates
fewer sites. As a result, the total number of live jobs in the
Regional business has reduced from over 400 at December 2015 to
approximately 250 at December 2016. Over 150 of the current live
projects have been through the Gated Lifecycle process.
In 2016, the Regional business successfully completed the A1
improvement scheme where lane capacity was increased from two lanes
to three lanes in each direction from the Metro Centre to Coal
House junction. Other key milestones included the completion of the
Kent bound platform at the new Abbey Wood Crossrail station and the
North Ayrshire community hospital. Material ongoing projects
include the Kennedy Street student accommodation project in
Glasgow, Clyde and Pen y Cymoedd windfarms, Redwood luxury
retirement village for Audley and the renovation and new build
scheme at No. 1 Palace Street in St James', London.
The Regional business had a number of landmark successes in
2016. Notable new contract awards in the period included:
-- GBP170 million contract to upgrade baggage screening and handling systems for Heathrow airport;
-- GBP150 million contract to deliver the main construction works of The Madison Tower, a 53-storey residential
building in Canary Wharf, London;
-- GBP82 million contract to build engineering and training facilities at RAF Marham in Norfolk, in readiness for
the arrival of the UK's first F-35 Lightning aircraft in 2018;
-- GBP47 million contract to deliver a 1,350 pupil academy on behalf of Hub North Scotland and Aberdeen City
Council; and
-- Having previously delivered 2,520 units across five Central London student accommodation schemes, the latest
contract with Urbanest is a GBP42 million development in Vauxhall, London.
Following its reorganisation, Balfour Beatty Kilpatrick has been
awarded a contract in excess of GBP20 million for the mechanical
and electrical services for a pharmaceutical research and
innovation facility being built in Hull. The Government's approval
for Hinkley Point C formalised the selection of a 50:50 joint
venture between Balfour Beatty and NG Bailey for the GBP460 million
power station electrical package. The work will deliver the
critical infrastructure to power the station, including cabling
totalling over 3,000 kilometres in length, fire and environmental
sealing and specialist packages associated with data acquisition
and plant control.
The Regional business also continues to secure a number of
significant projects operated by Scape Group, which is open to all
public sector bodies in the UK and covers projects ranging from
road repairs, new bridges and coastal defence works to light rail
schemes and major road projects. In 2016, the Group was awarded a
GBP35 million contract to deliver the first phase of the Perth
Transport futures project and a GBP14 million contract to deliver
the second phase of the Almond Bank flood defence scheme.
Included within 'awarded but not contracted', Balfour Beatty has
been selected as construction partner on Manchester University's
flagship project, the GBP350 million Engineering Campus development
and has also been awarded the Eastwick and Sweetwater residential
development project.
The Regional business continues to pursue a number of
opportunities across its core defence, education, health,
residential-led neighbourhoods, student accommodation and
transportation markets.
US
Underlying revenues in the US grew by 11% in the period (2%
decline at CER) and the order book increased by 34% (10% increase
at CER). The business reported an underlying profit from operations
for the year of GBP33 million (2015: GBP22 million loss), as the US
returned to profitability following a number of write-downs in the
prior year. The underlying operating profit margin at 1.0% is at
the low end of the Group's Build to Last Phase Two target of 1%-2%
for US construction, as the effects of legacy contracts trade out,
but the trajectory is positive and market conditions are considered
favourable.
The US business continued to drive operational focus and
business simplification. The general building business and the
infrastructure business have now been united under a single leader,
which further develops and complements the move to a leaner
organisational structure. The business has been refocused on
certain geographies, known as 'The Southern Smile'. This starts in
the Pacific North West, runs through California, Texas, Florida and
up through Georgia and the Carolinas to Washington DC. In the US
approximately 85% of revenues are generated from the general
building market, with the infrastructure market (rail, road and
water) accounting for the remaining 15%.
In the building business, underlying revenues were up 12%
(stable at CER). The order book increased by 30% (5% at CER), as
the business continued to see strong order intake, notwithstanding
the improved bidding disciplines. The business remains focused on
working with repeat customers, in known geographies where it can
deliver value. It has therefore intentionally withdrawn from
bidding on most stick frame multi-family housing, in order to
switch to better quality revenues in core markets such as office,
education, hospitality, residential and healthcare.
Notable awards in the period included a US$276 million contract
for a 42-storey mixed-use residential project in downtown San
Francisco; a US$199 million contract for a mixed-used development
in Dallas, comprising a 20-storey office tower and a second
34-storey tower with 253 residential units; a US$196 million
contract in Washington for the construction of two 12-storey office
towers to be built on top of an existing platform; a US$126 million
contract for Ohlone College, in California, for the development of
three new multi-storey academic core buildings that will house
classrooms, laboratories, offices, conference rooms and a library;
a US$110 million contract to construct four new elementary schools
and renovate a fifth school for the Highland Park Independent
School District in Texas; a US$99 million contract for the BPM Real
Estate Group in downtown Portland to construct a 19-storey office
and hotel development; and a US$84 million contract to build a
luxury mixed-use residential tower in midtown Atlanta.
In the infrastructure business, underlying revenues were up 4%
(8% down at CER). The order book increased 38% (12% up at CER)
following the notable award of a US$697 million contract for the
electrification of the 52-mile Caltrain rail corridor between San
Francisco and San Jose, laying the foundations for the operation of
high-speed trains from 2020. This award leverages expertise
demonstrated in constructing the extension of Regional Transport
District's light-rail line across Denver's south-east suburbs,
which was successfully opened in April 2016.
The infrastructure business continues to pursue design-build and
alternative delivery projects in its key rail, highway and water
markets to reflect ongoing changes in procurement trends in the
marketplace.
Even before the election of the new President, there was a
strong market outlook for construction in the US. In December 2015,
the FAST Act (Fixing America's Surface Transportation), a US$305
billion transportation bill was signed, providing guaranteed
funding for a five-year period. This bill permits longer term
project planning horizons in the public market and is leading to
improved visibility for public funded projects that had been slow
to come to market. There are further opportunities being created
with the number of state backed infrastructure bonds (US$30 billion
of education bonds in California, US$190 billion multi-state
transportation bonds), and potentially an increase in US private
public partnership schemes.
Rail
Underlying revenue in the rail business fell by GBP25 million to
GBP249 million (2015: GBP274 million). Underlying losses in the
year were GBP1 million (2015: GBP5 million) as the business
continued to be impacted by poor contract performance on a small
number of historical rail projects. The order book was stable at
GBP0.2 billion. Given the materiality of the segment, future
results announcements will include Rail within UK construction.
International
Underlying revenue in the Group's Hong Kong and Singapore joint
venture, Gammon Construction, increased by 21% (8% at CER), due to
growth in major building projects including the construction of
seven towers at the TW5 Cityside residential property development,
33 Tong Yin Street (residential towers and retail areas) and the
conversion of the ex-government Murray building into a hotel.
Underlying profit from operations in the region reduced to GBP11
million (2015: GBP19 million) as new contracts are yet to meet the
required revenue recognition milestones. In Hong Kong there are a
number of significant contracts where the range of potential
outcomes could result in a materially positive or negative swing to
profitability.
The order book grew by 25% (14% at CER), following the award of
a number of notable major building projects: a HK$4 billion
contract for the redevelopment of Somerset House into a 48-storey
office building; a HK$2.6 billion contract for a residential
development project for 12 residential towers and five four-storey
houses, which together will provide 857 new homes; and a HK$1.6
billion contract for the construction of the Lee Garden Three
Project, which will include 20 floors of office space atop a
five-level retail podium.
In the Middle East, underlying revenue increased to GBP315
million (2015: GBP197 million). However, the business continued to
make underlying losses, GBP2 million in the year (2015: GBP34
million), reflecting the challenging nature of the region. In early
2017, Balfour Beatty sold the Group's entire share in Dutco Balfour
Beatty and BK Gulf, for a total cash consideration of GBP11
million, to its joint venture partner. As part of the transaction,
the local partner assumed responsibility for Balfour Beatty's
guarantees of bonding obligations in the joint ventures.
Since the start of 2015, Balfour Beatty has exited the Middle
East, Indonesia and Australia in order to focus on its chosen
markets, in the UK, US and Far East.
SUPPORT SERVICES
Financial review
The Support Services segment comprises utilities and
transportation businesses. Utilities operates across power
transmission and distribution and the gas and water sectors.
Transportation operates across rail, highways and managed road
schemes for local authorities.
Underlying revenue for the division reduced by 12% to GBP1,103
million (2015: GBP1,259 million), due to the phasing of contract
and regulatory cycles. However, underlying profit from operations
increased to GBP34 million (2015: GBP24 million), as the 3.1%
(2015: 1.9%) underlying profit from operations margin in 2016
returned Support Services to the bottom end of the Build to Last
Phase Two industry-standard margin target of 3%-5%.
The order book was stable at GBP3.1 billion (2015: GBP3.1
billion) as growth in transportation was largely offset by a
decline in utilities.
Support Services 2016 2015
--------------------------- -------- --------
Order book(1) (GBPbn) 3.1 3.1
Revenue(1) (GBPm) 1,103 1,259
--------------------------- -------- --------
Profit from operations(2)
(GBPm) 34 24
Non-underlying items (12) (13)
--------------------------- -------- --------
Statutory profit from
operations 22 11
--------------------------- -------- --------
Underlying margin(1)
(%) 3.1% 1.9%
--------------------------- -------- --------
(1) including share of joint ventures and associates
(2) before non-underlying items (Note 8)
A reconciliation of the Group's performance measures to its
statutory results is provided in the Measuring Our Performance
section.
Operating review
Underlying utilities revenue reduced by 6% to GBP590 million,
with power transmission and distribution down 10% and gas and water
down 3%. The utilities order book reduced by 10%, with power
transmission and distribution down 13% and gas and water down
9%.
Volumes in power transmission and distribution saw a decline in
cabling and distribution network operator works, with 2015 also
having significant one-off repair works in offshore
transmission.
The power business has undertaken a significant restructure and
cost removal during 2016, including the internal appointment of a
new managing director, along with several other senior changes. The
business has also focused on qualifying out low-value works and
areas which do not align to its risk profile, including
significantly reducing its reliance on volume-based and second-tier
subcontracting projects.
In March 2016, power transmission and distribution was awarded
contracts worth GBP35 million by Scottish Hydro Electric for the
design and construction of the Bhlaraidh and Beinnuen wind farms
connections project near Fort Augustus, in Scotland. Most of the
project was successfully delivered during 2016.
In November 2016, the power business was awarded a GBP120
million contract by ElecLink Ltd to install two 50-kilometer
electricity cables between France and Great Britain through the
Channel Tunnel. This will be the first ever installation of a High
Voltage Direct Current (HVDC) interconnector in a live rail tunnel
environment.
The slight reduction in gas and water underlying revenue was
caused by the dip in the UK water regulatory cycle between the
completion of Asset Management Period 2010-2015 (AMP5) and new
contracts continuing to mature under AMP6 (2015-2020). The
reduction in the order book was as expected, given the progress of
the AMP6 delivery cycle. Many water contracts are extended over
multiple AMP periods and the Group has already started to engage on
the AMP7 planning cycle.
In 2016, gas and water secured an extension, through to 2020, to
the gas transmission and distribution contract worth GBP130 million
for Bord Gais, in Ireland, and also won a GBP38 million water
treatment scheme for South West Water. The delivery of key and
complex schemes remains on track. Gas and water expect a peak
volume year in 2017, as it represents the middle of the current
AMP6 cycle.
Underlying transportation revenues reduced by 18% to GBP513
million, due to expected volume declines from rail and highways.
Underlying rail revenues were lower following the completion of a
rail grinding contract in the prior year. Underlying highways
revenues declined due to lower capital spend on a number of
contracts for Highways England and completion of the contract for
Area 4 during the period.
The transportation order book grew by 14%, due to strong order
intake in rail and from local authorities. The rail business was
awarded a GBP170 million two-year extension to its Track
Partnership contract with London Underground, to deliver essential
track renewal work across the network. In local authorities Balfour
Beatty was awarded a GBP245 million seven-year highways maintenance
contract for Coventry City Council, Solihull Metropolitan Borough
Council and Warwickshire County Council. This unique collaborative
arrangement will deliver better value for money, improved service
resilience and flexibility in services. Additionally the Group was
awarded a GBP55 million two-year extension by West Sussex County
Council to continue its highways maintenance and improvement scheme
works and Connect Roads signed a GBP36 million, 10-year extension
to its Balfour Beatty Major Projects Highway Services contract to
deliver the essential maintenance works on the A50. The contract
covers a 56-kilometer section of the A50 between Stoke and Derby
which acts as a strategic east to west link between the M1 and
M6.
In September, the Group acquired Omnicom Engineering Ltd.
Omnicom complements Balfour Beatty's existing rail technology
business by bringing remote surveying hardware and software to
enhance the Group's Digital Rail strategy.
INFRASTRUCTURE INVESTMENTS
Financial review
The Investments business delivered another strong performance,
having continued its strategy of optimising value through the
disposal of mature assets, whilst also continuing to invest in new
opportunities and expanding the breadth of assets.
During the year Investments made significant progress in
simplifying its operations by exiting Balfour Beatty Infrastructure
Partners (BBIP), an infrastructure fund run at arm's length and
focused on secondary opportunities, and exiting from the Australian
market. In total 16 assets were either sold or part sold in the
period, with all transactions either at, or above, the Directors'
valuation.
Underlying profit from operations at GBP89 million (2015: GBP132
million) was lower than the prior year, predominantly due to a
reduction in profit on disposals as a different mix of assets was
sold. Despite an increase in proceeds to GBP189 million (2015:
GBP145 million) the reduction in profit on disposals reflected the
accounting profile of the assets sold in 2016. Pre-disposals
underlying operating profit decreased to GBP24 million (2015: GBP37
million) due to lost income from previous disposals. Net interest
income remained broadly consistent year on year at GBP26 million
(2015: GBP29 million). The lower underlying profit from operations
resulted in a lower profit before tax at GBP115 million (2015:
GBP161 million).
Infrastructure Investments 2016 2015
GBPm GBPm
---------------------------- ------ ------
Pre-disposals operating
profit(1) 24 37
Profit on disposals(1) 65 95
---------------------------- ------ ------
Profit from operations(1) 89 132
Net interest income from
PPP concessions(2) 26 29
---------------------------- ------ ------
Profit before tax(1) 115 161
Non-underlying items (6) (10)
---------------------------- ------ ------
Statutory profit before
tax 109 151
---------------------------- ------ ------
(1) before non-underlying items (Note 8).
(2) subordinated debt interest receivable and net interest
receivable on PPP financial assets and non-recourse borrowings
A reconciliation of the Group's performance measures to its
statutory results is provided in the Measuring Our Performance
section.
Operational review
The Investments business continued to grow with four wins on new
projects where equity will be invested, comprising: three private
rental housing projects and one data centre project. In addition,
the Investments business was appointed as third-party manager on
two fee-based projects located in Pennsylvania and Florida. In
these fee-based projects no equity will be invested.
In the private rented and regeneration sector, the North
American business continues to expand and successfully acquired a
stake in two private rental housing projects in Mobile, Alabama and
Atlanta, Georgia. The Mobile portfolio consists of three properties
totalling 320 units and the Atlanta property consists of 437 units.
Balfour Beatty Communities will perform property management
services for the properties, leveraging its existing capabilities.
In the UK the business acquired its first private development site
at Manchester New Cross. This project will provide a number of
units to the private rented housing sector and construction is
expected to begin following financial close in 2017. The
Investments business also won a data centre project in Ontario,
Canada. The project is located on the Canadian Forces Base in
Borden, Ontario and covers the design and construction, financing
and maintenance for a new 10,000m(2) data centre.
Financial close was reached on seven projects: a primary care
centres project in Ireland; a student accommodation project in
Glasgow; an offshore transmission project in the North Sea; an
energy from waste facility in Gloucestershire; the two US private
rental housing projects; and the data centre in Canada. Five
projects have not yet reached financial close.
The Investments business continued to make substantial equity
investments in the portfolio, with GBP65 million invested in the
period (2015: GBP102 million), of which GBP8 million was invested
in the BBIP infrastructure fund before its sale.
Interests in 16 assets were sold in the period, seven of which
were partial sales, generating total book gains on disposal of
GBP65 million (2015: GBP95 million from four assets).
The Investments business continues to see significant
opportunities for future investment in its core geographic markets
in the UK and North America, across its existing market sectors and
as it continues to grow into new adjacent sectors. The business
continues to monitor both the US and UK PPP markets for
opportunities, especially following the recent announcements
regarding PF2 in the UK and by the new administration in the
US.
Directors' valuation
The Directors' valuation was broadly maintained at GBP1,220
million (2015: GBP1,244 million) despite material disposals in the
period, as the number of projects in the portfolio decreased from
73 to 69. Two of these projects, Houston Baptist University in
Texas and West Florida University, were won in previous years and
have now been included in the project count at December 2015.
The Group continued to make substantial investments, with GBP65
million invested in new and existing projects. This reflected
continued success in targeted sectors with four new projects
included in the Directors' valuation for the first time.
The business continued its strategy of realising value through
recycling equity from mature, operationally proven assets, whilst
preserving interests in strategic projects that offer opportunities
to the wider Group. 16 investments were sold or part sold during
the year, including the Group's interest in the fund managed by
Balfour Beatty Infrastructure Partners (BBIP). In total these sales
generated GBP189 million in proceeds. All sales were transacted
either at, or above, the Directors' valuation. Cash yield from
distributions amounted to GBP64 million (2015: GBP82 million). The
portfolio again generated cash flow to the Group net of
investment.
The methodology used for the Directors' valuation is unchanged,
producing a valuation that more closely reflects market value and
which therefore changes with movements in the market. Cash flows
for each project are forecast based on historical and present
performance, future risks and macroeconomic forecasts and which
factor in current market assumptions. These cash flows are then
discounted using different discount rates based on the risk and
maturity of individual projects and reflecting secondary market
transaction experience. As in previous years, the Directors'
valuation may differ significantly from the accounting book value
of investments shown in the financial statements, which are
produced in accordance with International Financial Reporting
Standards rather than using a discounted cash flow approach.
Operational
New performance
Equity Distributions Disposal Unwind of project Gain on (inc. FX
2015 invested received proceeds discount wins sales movements) 2016
----------- ------ ---------- -------------- ---------- ---------- ---------- ----------- ------------ ------
UK 840 57 (40) (189) 59 - 7 (27) 707
North
America 404 8 (24) - 31 6 - 88 513
----------- ------ ---------- -------------- ---------- ---------- ---------- ----------- ------------ ------
Total 1,244 65 (64) (189) 90 6 7 61 1,220
----------- ------ ---------- -------------- ---------- ---------- ---------- ----------- ------------ ------
UK portfolio
In 2016 GBP57 million of equity investment was made in projects
across the portfolio: in the student accommodation project at
Aberystwyth University; the Ayrshire & Arran community
hospital; the regeneration development at Eastwick &
Sweetwater; and waste projects at Gloucester and Welland. One new
project, a property development at New Cross in Manchester, has
been added to the UK portfolio.
Demand for high-quality infrastructure investments in the
secondary market remained strong and the Group took advantage of
this through further sales of mature assets. Investor appetite for
yield in the ongoing, low interest rate environment continues
unabated and pricing in the secondary market is therefore expected
to remain strong for the foreseeable future.
Interests in 16 assets were sold in the period, seven of which
were partial sales, generating total book gains on disposal of
GBP65 million (2015: GBP95 million from four assets). The business
sold its entire 50% interest in the Wollongong project in
Australia, a 30% interest in the M1/A1 project (where the Group
retains a 20% interest), a 40% interest in the Humber Gateway OFTO
(where the Group retains a 20% interest), its entire interest in
the BSF portfolio comprised of seven schools projects and an 80%
interest in five street lighting projects (where the Group retains
a 20% interest). The Group's interest in Balfour Beatty
Infrastructure Partners (BBIP), which was included in the
Directors' valuation but not as a line item in the project total,
was sold during the year. All disposals were either at, or above,
the Directors' valuation.
Operational performance movements resulted in a GBP27 million
reduction in value. The most significant components of this were
lower inflation, lower forecast deposit interest rates, and an
increase in the assumed tax burden for potential purchasers. The
operational movement reflects lower inflation in 2016 followed by a
step-up in 2017 before reaching a 3% long-term assumption in 2018.
The change to interest rates incorporates a lowering of the
long-term rate to 2% as a consequence of the Bank of England's
0.25% reduction in base rates in the second half of 2016. In line
with government announcements in the year the corporation tax rate
has been further reduced from a long-term rate of 18% to 17% from
April 2020.
Discount rates applied to the UK portfolio range between 7% and
14% depending on project risk and maturity. The implied weighted
average discount rate for the UK portfolio is 8.3% (2015: 8.3%).
The impact of selling mature assets has been offset by a number of
investments moving from construction to operations phase. A 1%
change in discount rate would change the value of the UK portfolio
by approximately GBP80 million.
Consistent with other infrastructure funds, Balfour Beatty's
experience is that there is limited correlation between the
discount rates used to value PPP (and similar infrastructure
investments) and long-term interest rates. In the event that
interest rates increased in response to rising inflation, the
impact of any increase in discount rates would be mitigated by the
positive correlation between the value of the UK portfolio and
changes in inflation.
Following on from the OECD BEPS project's recommendations on the
tax deductibility of interest expense in 2015, HM Treasury and HM
Revenue and Customs issued their consultation on policy design and
implementation in May 2016 and published detailed draft legislation
in early 2017. The draft legislation preserves the concept of the
public infrastructure exemption put forward by the OECD and also
includes other helpful measures to protect such projects. The
proposals and their application are complex and remain subject to
further review, but the initial assessment is that the impact on
the Directors' valuation will not be material. Balfour Beatty will
remain engaged with the UK Government to clarify and evaluate the
impact of the draft legislation.
North American portfolio
In 2016, the business won three projects, two investments in
residential housing developments at Mobile in Alabama and Atlanta
in Georgia and a PPP data centre in Borden, Canada. In addition, a
second phase of the project at University of Texas, Dallas has been
included in the Directors' valuation.
Operational performance movements resulted in an GBP88 million
increase in the value of the portfolio, of which GBP85 million was
due to the fall in the value of sterling.
Discount rates applied to the North American portfolio range
between 7.5% and 10%. The implied weighted average discount rate is
8.2% (2015: 8.2%) and a 1% change in the discount would change the
value of the North American portfolio by approximately GBP72
million.
OTHER FINANCIAL ITEMS
Non-underlying items
The Board believes non-underlying items should be separately
identified on the face of the income statement to assist in
understanding the underlying financial performance achieved by the
Group.
Non-underlying items from continuing operations before tax of
GBP52 million were charged to the income statement in 2016. Items
included GBP25 million of costs related to the reassessment of
potential liabilities on historical health and safety breaches,
following new sentencing guidelines, and GBP14 million of
restructuring costs incurred relating to the Group's Build to Last
transformation programme which was launched in early 2015.
In 2016, the Group also commissioned a revised independent
actuarial report on its historical exposure to industrial disease
related liabilities. As a result, the Group has increased its
provision with a GBP14 million charge to the income statement in
the year. Other non-underlying items included amortisation of
acquired intangible assets of GBP9 million, the profits from Rail
Germany of GBP1 million, and losses resulting from legacy ES
contracts of GBP6 million. The non-underlying charges recognised in
2016 were partially offset by a GBP9 million gain following the
release of all remaining provisions relating to Trans4m Ltd
(Trans4m). Trans4m went into creditors' voluntary liquidation on 27
June 2016.
Taxation
The Group's underlying profit before tax from continuing
operations for subsidiaries of GBP5 million (2015: GBP170 million
loss) resulted in an underlying tax charge of GBP12 million (2015:
GBP11 million). The tax charge principally arises due to
significant non-recognition of deferred tax assets on losses
incurred in the year. In addition tax is levied at the subsidiary
level for US and Canada joint ventures and associates, rather than
within the share of joint ventures and associates.
Discontinued operations
In 2016, Balfour Beatty reached a settlement with the purchaser
of Parsons Brinckerhoff (PB), the Group's former professional
services business disposed in October 2014, in relation to
outstanding tax matters and indemnities. The Group received an
additional GBP9 million as a result of the settlement. Provisions
in relation to these matters have been released, resulting in an
overall non-underlying gain to the Group of GBP24 million.
Pensions
The Group's balance sheet includes aggregate deficits of GBP231
million (2015: GBP146 million) for pension schemes. The increase in
pension deficit in the year is largely due to a reduction in
long-term interest rates and a contraction in credit spreads.
Although the scheme obligations increased, the hedging programmes
put in place offset a significant element of this change with an
increase in scheme assets.
A formal triennial funding valuation of the Balfour Beatty
Pension Fund (BBPF) was carried out as at 31 March 2016. The
Company and the trustees agreed the key commercial principles of
the plan for the BBPF to reach self-sufficiency during 2027 (some
three years earlier than previously planned). Balfour Beatty will
make cash contributions totalling GBP182 million over the next
eight years; under the previous agreement cash contributions
totalled GBP376 million over the same period. These payments
include contributions related to the Scottish Limited Partnership
(SLP) structure established in 2015. The Company will also transfer
additional assets into the SLP worth up to GBP87 million by 2019.
The Company has agreed to amend the existing dividend sharing
mechanism such that if the dividend cover ratio falls below 3x in
2016, 2.5x in 2017 or 2x from 2018 onwards, funding to the BBPF
will be accelerated.
The Group also completed the formal triennial funding valuation
for the Railways Pension Scheme carried out as at 31 December 2013.
As a result, the Group agreed to make ongoing fixed deficit
contributions of GBP6 million per annum which should reduce the
deficit to zero by 2031. The triennial funding valuation as at 31
December 2016 is now underway.
Goodwill
The goodwill on the Group's balance sheet at 31 December 2016
increased to GBP937 million (2015: GBP844 million), primarily
relating to movements in foreign exchange rates. Impairment reviews
have been carried out, and none of the carrying values have been
impaired.
In light of the significant, albeit reduced, losses incurred
within the UK construction business in 2016 the Group has
considered whether a reasonable possible change in assumptions
would lead to an impairment of the goodwill in the related
cash-generating units and concluded that it is not the case. The
stabilisation and recovery of the Group's UK construction business
to more normal levels of performance is, however, a key assumption
underpinning the cash flow forecasts used to assess the recoverable
amount of the related goodwill.
Banking facilities
Balfour Beatty's committed banking facility totals GBP400
million. The purpose of this syndicated revolving credit facility
is to provide liquidity from a set of core relationship banks to
support ongoing activities. The Company completed its refinancing
in December 2015 with the facility extending through to 2018. In
November 2016, GBP375 million of the facility was extended until
December 2019. A further one-year extension, through to 2020, is
available, subject to bank approval. At 31 December 2016, GBP350
million of this facility was undrawn.
Financial risk factors and going concern
The key financial risk factors for the Group remain largely
unchanged. Some elements of the Group's markets are recovering, and
this can lead to increased risk of subcontractor failures, due to
their cash requirements for increased working capital, and also the
potential for inflationary pressures in some areas. On the other
hand, this should also reduce pressure on bidding margins.
The Group's US private placement and committed bank facilities
contain certain financial covenants, such as the ratio of the
Group's EBITDA to its net debt which needs to be less than 3.0 and
the ratio of its EBITA to net borrowing costs which needs to be in
excess of 3.0. These covenants are tested on a rolling 12-month
basis as at the June and December reporting dates. At 31 December
2016, both these covenants were passed as the Group had net cash
and net interest income from a covenant test perspective.
The Group is forecasting to remain within its banking covenants
during 2017. While recognising that there can be no absolute
certainty, the Directors believe that these covenant tests will be
met.
The Directors have acknowledged the guidance 'Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009'
published by the Financial Reporting Council in October 2009. In
reviewing the future prospects of the Group, the following factors
are relevant:
-- the Group has a strong order backlog;
-- there continues to be underlying demand in infrastructure markets in the countries in which the Group operates;
-- excluding the non-recourse net borrowings of PPP subsidiaries, the Group had net cash balances of GBP173 million
at 31 December 2016; and
-- the Group's committed bank facility totals GBP400 million, of which GBP350 million was undrawn at 31 December
2016.
Based on the above, and having made appropriate enquiries and
reviewed medium-term cash forecasts, the Directors consider it
reasonable to assume that the Group and the Company have adequate
resources to continue for the foreseeable future and, for this
reason, have continued to adopt the going concern basis in
preparing the financial statements.
MEASURING OUR PERFORMANCE
Providing clarity on the Group's alternative performance
measures
Following the issuance of the Guidelines on Alternative
Performance Measures (APMs) by the European Securities and Markets
Authorities (ESMA) in June 2015, the Group has included this
section in its Annual Report with the aim of providing transparency
and clarity on the measures adopted internally to assess
performance.
Throughout this report, the Group has presented performance
measures which are considered most relevant to the Group and are
used to measure the Group's performance on a day-to-day basis.
These measures are chosen to provide a balanced view of the
Group's operations and are considered useful to investors as these
measures provide relevant information on the Group's past or future
performance, position or cash flows.
The APMs adopted by the Group are also commonly used in the
sectors it operates in and therefore serve as a useful aid for
investors to compare Balfour Beatty's performance to its peers.
The Board believes that disclosing these performance measures
enhances investors' ability to evaluate and assess the underlying
financial performance of the Group's continuing operations and the
related key business drivers.
These financial performance measures are also aligned to
measures used internally to assess business performance in the
Group's budgeting process and when determining compensation.
Equivalent information cannot be presented by using financial
measures defined in the financial reporting framework alone.
Readers of the Annual Report and Accounts are encouraged to
review the financial statements in their entirety.
Performance measures used to assess the Group's operations in
the year
Underlying profit from operations (PFO)
Underlying PFO is presented before finance cost and interest
income and is the key measure used to assess the Group's
performance in the Construction Services and Support Services
segments. This is also a common measure used by the Group's peers
operating in these sectors.
This measure reflects the returns to the Group from services
provided in these operations that are generated from activities
that are not financing in nature and therefore an underlying
pre-finance cost measure is more suited to assessing underlying
performance.
Underlying profit before tax (PBT)
The Group assesses performance in its Infrastructure Investments
segment using an underlying PBT measure. This differs from the
underlying PFO measure used to measure the Group's Construction
Services and Support Services segments because in addition to
margins generated from operations, there are returns to the
Investments business which are generated from the financing element
of its projects.
These returns take the form of subordinated debt interest
receivable and interest receivable on PPP financial assets which
are included in the Group's income statement in investment income.
These are then offset by the finance cost incurred on the
non-recourse debt associated with the underlying projects, which is
included in the Group's income statement in finance costs.
Measuring the Group's performance
The following measures are referred to in this Annual Report
when reporting performance, both in absolute terms and also in
comparison to earlier years:
Statutory measures
Statutory measures are derived from the Group's reported
financial statements, which are prepared in accordance with the
International Financial Reporting Standards (IFRSs) as adopted by
the EU and as issued by the International Accounting Standards
Board (IASB).
Where a standard allows certain interpretations to be adopted,
the Group has applied its accounting policies consistently. These
accounting policies can be found on pages 112 to 118 of the Annual
Report and Accounts.
The Group's statutory measures take into account all of the
factors, including those that it cannot influence (principally
foreign currency fluctuations) and also large non-recurring items
which do not reflect the ongoing underlying performance of the
Group.
Performance measures
In assessing its performance, the Group has adopted certain
non-statutory measures because, unlike its statutory measures,
these cannot be derived directly from its financial statements. The
Group commonly uses the following measures to assess its
performance:
a) Order book
The Group's disclosure of its order book is aimed to provide
insight into its pipeline of work and future performance. The
Group's order book is not a measure of past performance and
therefore cannot be derived from its financial statements.
The Group's order book comprises the unexecuted element of
orders on contracts that have been secured. Where contracts are
subject to variations, only secured contract variations are
included in the reported order book.
Where contracts fall under framework agreements, an estimate is
made of orders to be secured under that framework agreement. This
is based on historical trends from similar framework agreements
delivered in the past and the estimate of orders included in the
order book is that which is probable to be secured.
b) Underlying performance
The Group adjusts for certain non-underlying items which the
Board believes assists in understanding the performance achieved by
the Group. These items include:
- gains and losses on the disposal of businesses and
investments, unless this is part of a programme of releasing value
from the disposal of similar businesses or investments such as
infrastructure concessions
- costs of major restructuring and reorganisation of existing businesses
- acquisition and similar costs related to business combinations such as transaction costs
- impairment and amortisation charges on intangible assets
arising on business combinations (amortisation of acquired
intangible assets). These are non-underlying costs as they do not
relate to the underlying performance of the Group.
From time to time, it may be appropriate to disclose further
items as non-underlying items in order to reflect the underlying
performance of the Group.
The results of Rail Germany and certain legacy ES contracts have
been treated as non-underlying items as the Group is committed to
exiting these parts of the business.
Further details of these non-underlying items are provided in
Note 8.
A reconciliation has been provided on the next page to show how
the Group's statutory results are adjusted to exclude significant
items that are non-recurring and their impact on its statutory
financial information, both as a whole and in respect of specific
line items.
Reconciliation of 2016 statutory results to performance
measures
Build
2016 to Last Provision Results 2016
statutory restructuring Intangible increases/ Gains on Results of Rail performance
results costs amortisation (releases) disposal of ES Germany Other measures
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Continuing
operations
------------- ------------ ---------- --------- ------- --------- -----
Revenue
including
share of
joint
ventures and
associates
(performance) 8,683 - - - - (3) (150) - 8,530
Share of
revenue of
joint
ventures and
associates (1,760) - - - - - 12 - (1,748)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Group revenue
(statutory) 6,923 - - - - (3) (138) - 6,782
Cost of sales (6,639) - - - - 9 127 - (6,503)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Gross profit 284 - - - - 6 (11) - 279
Gain on
disposals of
interests in
investments 65 - - - - - - - 65
Amortisation
of acquired
intangible
assets (9) - 9 - - - - - -
Other net
operating
expenses (381) 14 - 31 (8) - 10 2 (332)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Group
operating
profit/(loss) (41) 14 9 31 (8) 6 (1) 2 12
Share of
results of
joint
ventures and
associates 56 - - (1) - - - - 55
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit/(loss)
from
operations 15 14 9 30 (8) 6 (1) 2 67
Investment
income 75 - - - - - - - 75
Finance costs (82) - - - - - - - (82)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit/(loss)
before
taxation 8 14 9 30 (8) 6 (1) 2 60
Taxation (8) (4) (3) - - - 3 - (12)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit/(loss)
for the year
from
continuing
operations - 10 6 30 (8) 6 2 2 48
Profit for the
year from
discontinued
operations 24 - - - (24) - - - -
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit for the
year 24 10 6 30 (32) 6 2 2 48
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Reconciliation of 2016 statutory results to performance measures
by segment
Build
2016 to Last Provision Results 2016
statutory restructuring Intangible increases/ Gains on Results of Rail performance
Profit/(loss) results costs amortisation (releases) disposal of ES Germany Other measures
from operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Segment
------------- ------------ ---------- --------- ------- --------- -----
Construction
Services (57) 12 3 19 (5) 6 (1) - (23)
Support
Services 22 1 - 11 - - - - 34
Infrastructure
Investments 83 - 6 - (3) - - 3 89
Corporate
activities (33) 1 - - - - - (1) (33)
--------------- --------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Total 15 14 9 30 (8) 6 (1) 2 67
--------------- --------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Reconciliation of 2015 statutory results to performance
measures
Build
2015 to Last Other Results 2015
statutory restructuring Intangible restructuring IT assets Gains on Results of Rail performance
results costs amortisation costs impairment disposal of ES Germany Other measures
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Continuing
operations
------------- ------------ -------------- ---------- -------- ------- ------- -----
Revenue
including
share of
joint
ventures and
associates
(performance) 8,444 - - - - - (30) (179) - 8,235
Share of
revenue of
joint
ventures and
associates (1,489) - - - - - - 18 - (1,471)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Group revenue
(statutory) 6,955 - - - - - (30) (161) - 6,764
Cost of sales (6,798) - - - - 38 151 (6,609)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Gross profit 157 - - - - - 8 (10) - 155
Gain on
disposals of
interests in
investments 95 - - - - - - - - 95
Amortisation
of acquired
intangible
assets (10) - 10 - - - - - - -
Other net
operating
expenses (468) 23 - 9 17 (16) - 13 19 (403)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Group
operating
profit/(loss) (226) 23 10 9 17 (16) 8 3 19 (153)
Share of
results of
joint
ventures and
associates 44 - - - - - - 3 - 47
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Profit/(loss)
from
operations (182) 23 10 9 17 (16) 8 6 19 (106)
Investment
income 52 - - - - - - - - 52
Finance costs (69) - - - - - - - - (69)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Profit/(loss)
before
taxation (199) 23 10 9 17 (16) 8 6 19 (123)
Taxation (7) - (4) (2) - - - 2 - (11)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Loss for the
year from
continuing
operations (206) 23 6 7 17 (16) 8 8 19 (134)
Loss for the
year from
discontinued
operations - - - - - (1) - - - (1)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Profit/(loss)
for the year (206) 23 6 7 17 (17) 8 8 19 (135)
-------------- --------- ------------- ------------ -------------- ---------- -------- ------- ------- ----- -----------
Reconciliation of 2015 statutory results to performance measures
by segment
Build
2015 to Last Other Results 2015
statutory restructuring Intangible restructuring IT assets Gains on Results of Rail performance
Profit/(loss) results costs amortisation costs impairment disposal of ES Germany Other measures
from operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ------------- ------------ ------------- ---------- -------- ------- ------- ----- -----------
Segment
------------- ------------ ------------- ---------- -------- ------- ------- -----
Construction
Services (280) 14 4 9 9 (16) 8 6 17 (229)
Support
Services 11 6 - - 7 - - - - 24
Infrastructure
Investments 122 - 6 - - - - - 4 132
Corporate
activities (35) 3 - - 1 - - - (2) (33)
--------------- --------- ------------- ------------ ------------- ---------- -------- ------- ------- ----- -----------
Total (182) 23 10 9 17 (16) 8 6 19 (106)
--------------- --------- ------------- ------------ ------------- ---------- -------- ------- ------- ----- -----------
c) Underlying profit before tax
As explained, the Group's Infrastructure Investments segment is
assessed on an underlying profit before tax (PBT) measure. This is
calculated as follows:
2016 2015
GBPm GBPm
------------------------------------------------- ----- -----
Underlying profit from operations (section
(b) and Note 5) 89 132
Add: Subordinated debt interest receivable(+) 29 24
Interest receivable on PPP financial
assets(+) 21 24
Less: Non-recourse borrowings finance cost(+) (24) (19)
------ ----------------------------------------- ----- -----
Underlying profit before tax 115 161
Non-underlying items (section (b) and
Note 5) (6) (10)
------------------------------------------------- ----- -----
Statutory profit before tax 109 151
------------------------------------------------- ----- -----
(+) Refer to Note 6 and Note 7.
d) Underlying earnings per share
In line with the Group's measurement of underlying performance,
the Group also presents its earnings per share on an underlying
continuing basis. The table below reconciles this to the statutory
earnings per share.
Reconciliation from statutory EPS to performance EPS
2016 2015
Pence Pence
--------------------------------------------------------------------------------------- ------ ------
Statutory earnings/(loss) per ordinary share 3.5 (30.1)
Less: earnings from discontinued operations (3.5) (0.1)
--------------------------------------------------------------------------------------- ------ ------
Statutory loss per ordinary share from continuing operations - (30.2)
Amortisation of acquired intangible assets 0.9 0.8
Other non-underlying items 6.1 9.7
--------------------------------------------------------------------------------------- ------ ------
Underlying earnings/(loss) per ordinary share from continuing operations (performance) 7.0 (19.7)
--------------------------------------------------------------------------------------- ------ ------
e) Revenue including share of joint ventures and associates
(JVAs)
The Group uses a revenue measure which is inclusive of its share
of revenue generated from its JVAs. As the Group uses revenue as a
measure of the level of activity performed by the Group during the
year, the Board believes that including revenue that is earned from
its JVAs better reflects the size of the business and the volume of
work carried out and more appropriately compares to PFO.
This differs from the statutory measure of revenue which
presents Group revenue earned from its subsidiaries.
A reconciliation of the statutory measure of revenue to the
Group's performance measure is shown in the tables in section (b).
A comparison of the growth rates in statutory and performance
revenue can be found in section (i).
f) Recourse net cash/borrowings
The Group also measures its performance based on its net
cash/borrowings position at the period end. This is analysed using
only elements that are recourse to the Group and excludes the
liability component of the Company's preference shares, which is
debt in nature according to statutory measures, as this is excluded
from the definition of net debt in the covenants set out in the
Group's facilities.
Non-recourse elements are cash and debt that are ringfenced
within certain infrastructure concession project companies.
Net debt/cash reconciliation
2016 2016 2015 2015
statutory Adjustment performance statutory Adjustment performance
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------------- ---------- ---------- ----------- ---------- ---------- ------------
Total cash within the Group 769 (7) 762 666 (20) 646
---------- ---------- ----------- ---------- ---------- ------------
Cash and cash - infrastructure
equivalents concessions 7 (7) - 20 (20) -
- other 762 - 762 646 - 646
---------- ---------- ----------- ---------- ---------- ------------
Total debt within the Group (929) 340 (589) (966) 483 (483)
---------- ---------- ----------- ---------- ---------- ------------
Borrowings - non-recourse loans (240) 240 - (385) 385 -
- other (589) - (589) (483) - (483)
Liability component of preference shares (100) 100 - (98) 98 -
----------------------------------------- ---------- ---------- ----------- ---------- ---------- ------------
Net (debt)/cash (160) 333 173 (300) 463 163
----------------------------------------- ---------- ---------- ----------- ---------- ---------- ------------
g) Average net cash/borrowings
The Group uses an average net cash/borrowings measure as this
reflects its financing requirements throughout the period. The
Group calculates its average net cash/borrowings based on the
average of opening and closing figures for each month through the
period.
The average net cash/borrowings measure excludes non-recourse
cash and debt and the liability component of the Company's
preference shares, and this performance measure shows average net
borrowings of GBP46m for 2016.
Using a statutory measure (inclusive of non-recourse elements
and the liability component of the Company's preference shares)
gives average net borrowings of GBP230m for 2016.
h) Directors' valuation of the Investments portfolio
The Group uses a different methodology to assess the value of
its Investments portfolio. As described in the Directors' valuation
section, the Directors' valuation has been undertaken using
forecast cash flows for each project based on progress to date and
market expectations of future performance. These cash flows have
been discounted using different discount rates depending on project
risk and maturity, reflecting secondary market transaction
experience. As such, the Board believes that this measure better
reflects the potential returns to the Group from this
portfolio.
The Directors have valued the Investments portfolio at GBP1.2bn
at the year end. The Directors' valuation will differ from the
statutory carrying value of these investments, which are accounted
for using the relevant standards in accordance with IFRS rather
than a discounted cash flow approach.
i) Constant exchange rates (CER)
The Group operates across a variety of geographic locations and
in its statutory results, the results of its overseas entities are
translated into the Group's presentational currency at average
rates of exchange for the period. The Group's key exchange rates
applied in deriving its statutory results are shown in Note 4.
To measure changes in the Group's performance compared with the
previous period without the effects of foreign currency
fluctuations, the Group provides growth rates on a CER basis. These
measures remove the effects of currency movements by retranslating
the prior period's figures at the current period's exchange rates,
using average rates for revenue and closing rates for order book. A
comparison of the Group's statutory growth rate to the CER growth
rate is provided in the table below:
2016 statutory growth compared to performance growth
Construction Services
-----------------------------------------------
Infrastructure
UK US Rail Gammon Middle East Total Support Services Investments Total
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
Revenue (GBPm)
----- ----- ----- ------ -----------
2016 statutory 1,896 3,330 386 - - 5,612 1,076 235 6,923
2015 statutory 2,050 2,931 430 - - 5,411 1,234 310 6,955
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
Statutory growth (%) (8)% 14% (10)% - - 4% (13)% (24)% -%
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
2016 performance(+) 1,894 3,427 249 967 315 6,852 1,103 575 8,530
2015 performance
retranslated(+) 2,024 3,500 276 897 222 6,919 1,264 616 8,799
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
Performance CER
growth (%) (6)% (2)% (10)% 8% 42% (1)% (13)% (7)% (3)%
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
Order book (GBPbn)
----- ----- ----- ------ -----------
2016 2.1 5.5 0.2 1.5 0.3 9.6 3.1 - 12.7
2015 1.9 4.1 0.2 1.2 0.5 7.9 3.1 - 11.0
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
Growth (%) 11% 34% - 25% (40)% 22% - - 15%
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
2016 2.1 5.5 0.2 1.5 0.3 9.6 3.1 - 12.7
2015 retranslated 1.9 5.0 0.2 1.4 0.6 9.1 3.1 - 12.2
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
CER growth (%) 11% 10% - 14% (50)% 5% - - 4%
--------------------- ----- ----- ----- ------ ----------- ----- ---------------- --------------------- -----
(+) Performance revenue is underlying revenue from continuing
operations including share of joint ventures and associates as set
out in section (e).
Forward-looking statements
This announcement may include certain forward-looking
statements, beliefs or opinions, including statements with respect
to Balfour Beatty plc's business, financial condition and results
of operations. These forward-looking statements can be identified
by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "anticipates", "targets", "aims",
"continues", "expects", "intends", "hopes", "may", "will", "would",
"could" or "should" or, in each case, their negative or other
various or comparable terminology. These statements are made by the
Balfour Beatty plc Directors in good faith based on the information
available to them at the date of this announcement and reflect the
Balfour Beatty plc Directors' beliefs and expectations. By their
nature these statements involve risk and uncertainty because they
relate to events and depend on circumstances that may or may not
occur in the future. A number of factors could cause actual results
and developments to differ materially from those expressed or
implied by the forward-looking statements, including, without
limitation, developments in the global economy, changes in UK and
US government policies, spending and procurement methodologies, and
failure in Balfour Beatty's health, safety or environmental
policies.
No representation or warranty is made that any of these
statements or forecasts will come to pass or that any forecast
results will be achieved. Forward-looking statements speak only as
at the date of this announcement and Balfour Beatty plc and its
advisers expressly disclaim any obligations or undertaking to
release any update of, or revisions to, any forward-looking
statements in this announcement. No statement in the announcement
is intended to be, or intended to be construed as, a profit
forecast or profit estimate or to be interpreted to mean that
earnings per Balfour Beatty plc share for the current or future
financial years will necessarily match or exceed the historical
earnings per Balfour Beatty plc share. As a result, you are
cautioned not to place any undue reliance on such forward-looking
statements.
Group Income Statement
For the year ended 31 December 2016
2016 2015
--------------------------------------- ----------------------------------------
Non-underlying Non-underlying
Underlying items Underlying items
items(1) (Note 8) Total items(1) (Note 8) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Continuing
operations
---------- ------------------ ------- ---------- -------------- ------------
Revenue including
share of joint
ventures and
associates 8,530 153 8,683 8,235 209 8,444
Share of revenue
of joint ventures
and associates 15 (1,748) (12) (1,760) (1,471) (18) (1,489)
---------- ------------------ ------- ---------- -------------- ------------
Group revenue 6,782 141 6,923 6,764 191 6,955
Cost of sales (6,503) (136) (6,639) (6,609) (189) (6,798)
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Gross profit 279 5 284 155 2 157
Gain on disposals
of interests in
investments 20.2 65 - 65 95 - 95
Amortisation of
acquired
intangible assets 8 - (9) (9) - (10) (10)
Other net
operating
expenses (332) (49) (381) (403) (65) (468)
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Group operating
profit/(loss) 12 (53) (41) (153) (73) (226)
Share of results
of joint ventures
and associates 14 55 1 56 47 (3) 44
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Profit/(loss) from
operations 67 (52) 15 (106) (76) (182)
Investment income 6 75 - 75 52 - 52
Finance costs 7 (82) - (82) (69) - (69)
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Profit/(loss)
before taxation 60 (52) 8 (123) (76) (199)
Taxation 9 (12) 4 (8) (11) 4 (7)
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Profit/(loss) for
the year from
continuing
operations 48 (48) - (134) (72) (206)
Profit/(loss) for
the year from
discontinued
operations - 24 24 (1) 1 -
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Profit/(loss) for
the year 48 (24) 24 (135) (71) (206)
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Attributable to
Equity holders 48 (24) 24 (135) (71) (206)
Non-controlling
interests - - - - - -
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
Profit/(loss) for
the year 48 (24) 24 (135) (71) (206)
------------------ ----- ---------- ------------------ ------- ---------- -------------- ------------
(1) Before non-underlying items (Note 8).
Notes 2016 pence 2015 pence
------------------------------------------------------------------ ----------- -------------- ----------
Basic earnings/(loss) per ordinary share
- continuing operations 10 - (30.2)
- discontinued operations 10 3.5 0.1
------------------------------------------------------------------ ----------- -------------- ----------
10 3.5 (30.1)
------------------------------------------------------------------ ----------- -------------- ----------
Diluted earnings/(loss) per ordinary share
- continuing operations 10 - (30.2)
- discontinued operations 10 3.5 0.1
------------------------------------------------------------------ ----------- -------------- ----------
10 3.5 (30.1)
------------------------------------------------------------------ ----------- -------------- ----------
Dividends per ordinary share proposed for the year 11 2.7 -
------------------------------------------------------------------ ----------- -------------- ----------
Group Statement of Comprehensive Income
For the year ended 31 December 2016
2016 2015
----- ----------- ----- ----- ----------- -----
Share
Share of
of joint joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------------------------- ----- ----------- ----- ----- ----------- -----
(Loss)/profit for the year (32) 56 24 (250) 44 (206)
Other comprehensive (loss)/income
for the year
Items which will not subsequently
be reclassified to the income
statement
----- ----------- ----- ----- ----------- -----
Actuarial (losses)/gains on
retirement benefit liabilities (121) 1 (120) (86) (4) (90)
Tax on above 2 - 2 15 - 15
----- ----------- ----- ----- ----------- -----
(119) 1 (118) (71) (4) (75)
----- ----------- ----- ----- ----------- -----
Items which will subsequently
be reclassified to the income
statement
----- ----------- ----- ----- ----------- -----
Currency translation differences 51 41 92 29 3 32
PPP financial
Fair value revaluations - assets 27 10 37 (13) (170) (183)
- cash flow hedges (16) (92) (108) 8 21 29
available-for-sale
investments in
- mutual funds 1 - 1
Recycling of revaluation reserves
to the income statement on
disposal(^) (17) 9 (8) (15) (5) (20)
Tax on above (1) 15 14 1 33 34
----- ----------- ----- ----- ----------- -----
45 (17) 28 10 (118) (108)
----- ----------- ----- ----- ----------- -----
Total other comprehensive
loss for the year (74) (16) (90) (61) (122) (183)
---------------------------------------------------------- ----- ----------- ----- ----- ----------- -----
Total comprehensive (loss)/income
for the year (106) 40 (66) (311) (78) (389)
---------------------------------------------------------- ----- ----------- ----- ----- ----------- -----
Attributable to
Equity holders (67) (389)
Non-controlling interests 1 -
---------------------------------------------------------- ----- ----------- ----- ----- ----------- -----
Total comprehensive loss for
the year (66) (389)
---------------------------------------------------------- ----- ----------- ----- ----- ----------- -----
(^) Recycling of revaluation reserves to the income statement on
disposal has no associated tax effect.
Group Statement of Changes in Equity
For the year ended 31 December 2016
Share
of
joint
ventures'
Called-up Share and Retained Non-
share premium Special associates' Other profits/ controlling
capital account reserve reserves reserves (losses) interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- -------- -------- ------------ --------- --------- ------------ -----
At 1 January 2015 345 64 23 340 140 315 3 1,230
Total comprehensive
(loss)/income
for the year - - - (78) 5 (316) - (389)
Joint ventures' and
associates'
dividends - - - (69) - 69 - -
Issue of ordinary shares - 1 - - - - - 1
Movements relating to
share-based
payments - - - - (1) (12) - (13)
Minority interest - - - - - - 1 1
Reserve transfers relating
to joint venture and
associate
disposals - - - (13) - 13 - -
Other transfers - - (1) 16 - (15) - -
At 31 December 2015 345 65 22 196 144 54 4 830
Total comprehensive
(loss)/income
for the year - - - 40 44 (151) 1 (66)
Ordinary dividends - - - - - (6) - (6)
Joint ventures' and
associates'
dividends - - - (43) - 43 - -
Movements relating to
share-based
payments - - - - 3 1 - 4
Reserve transfers relating
to joint venture and
associate
disposals - - - (9) - 9 - -
At 31 December 2016 345 65 22 184 191 (50) 5 762
------------------------------ --------- -------- -------- ------------ --------- --------- ------------ -----
Group Balance Sheet
At 31 December 2016
2016 2015
Notes GBPm GBPm
------------------------------------------------------------ ----- ------- -------
Non-current assets
Intangible assets - goodwill 12 937 844
- other 13 225 222
Property, plant and equipment(2) 181 163
Investment properties(2) 36 4
Investments in joint ventures and associates 14 628 671
Investments 45 44
PPP financial assets 163 402
Trade and other receivables 15 180 114
Deferred tax assets 54 58
Derivative financial instruments 3 -
2,452 2,522
------------------------------------------------------------ ----- ------- -------
Current assets
Inventories and non-construction work
in progress 101 144
Due from construction contract customers 380 379
Trade and other receivables 15 1,066 885
Cash and cash equivalents - infrastructure concessions 19.2 7 20
- other 19.2 762 646
Current tax receivable 8 4
Derivative financial instruments 1 1
------------------------------------------------------------ ----- ------- -------
2,325 2,079
Total assets 4,777 4,601
------------------------------------------------------------ ----- ------- -------
Current liabilities
Due to construction contract customers (542) (472)
Trade and other payables 16 (1,752) (1,700)
Provisions (147) (126)
Borrowings - non-recourse loans 19.3 (47) (22)
- other 19.3 (56) (13)
Current tax payable (18) (20)
Derivative financial instruments (6) (11)
------------------------------------------------------------ ----- ------- -------
(2,568) (2,364)
------------------------------------------------------------ ----- ------- -------
Non-current liabilities
Trade and other payables 16 (151) (130)
Provisions (126) (80)
Borrowings - non-recourse loans 19.3 (193) (363)
- other 19.3 (533) (470)
Liability component of preference shares (100) (98)
Retirement benefit liabilities 17 (231) (146)
Deferred tax liabilities (80) (53)
Derivative financial instruments (33) (67)
------------------------------------------------------------ ----- ------- -------
(1,447) (1,407)
------------------------------------------------------------ ----- ------- -------
Total liabilities (4,015) (3,771)
------------------------------------------------------------ ----- ------- -------
Net assets 762 830
------------------------------------------------------------ ----- ------- -------
Equity
Called-up share capital 345 345
Share premium account 65 65
Special reserve 22 22
Share of joint ventures' and associates'
reserves 184 196
Other reserves 191 144
Retained profits (50) 54
------------------------------------------------------------ ----- ------- -------
Equity attributable to equity holders
of the parent 757 826
Non-controlling interests 5 4
------------------------------------------------------------ ----- ------- -------
Total equity 762 830
------------------------------------------------------------ ----- ------- -------
(2) Re-presented to show assets that are held by the Group to
generate rental income and/or capital appreciation separately from
property, plant and equipment. These assets meet the definition of
investment properties and have been reclassified accordingly.
Group Statement of Cash Flows
For the year ended 31 December 2016
2016 2015
Notes GBPm GBPm
------------------------------------------------------------------------ ----- ----- -----
Cash flows used in operating activities
Cash used in:
- continuing
operations - underlying(1) 19.1 (132) (84)
- non-underlying 19.1 (15) (54)
- discontinued operations 19.1 - 3
Income taxes received 11 6
------------------------------------------------------------------------ ----- ----- -----
Net cash used in operating activities (136) (129)
------------------------------------------------------------------------ ----- ----- -----
Cash flows from investing activities
Dividends received from joint ventures and
associates
- infrastructure concessions 20 45
- other 23 24
Interest received - infrastructure concessions 19 16
Interest received - other 20 5
Acquisition of businesses, net of cash and
cash equivalents acquired 20.1 (6) (3)
Purchases
of: - intangible assets - infrastructure concessions (6) (23)
- intangible assets - other (5) (20)
- property, plant and equipment - infrastructure
concessions(2) (14) (9)
- property, plant and equipment - other (27) (27)
- investment properties(2) (32) (4)
- other investments (1) (2)
Investments in and long-term loans to joint
ventures and associates (37) (79)
Capital repayment from infrastructure concession
joint venture - 7
Short-term loans to joint ventures and associates - (11)
Loans repaid from joint ventures and associates - 2
PPP financial assets cash expenditure (31) (75)
PPP financial assets cash receipts 39 30
Disposals - investments in joint ventures - infrastructure
of: concessions 20.2 155 104
- investments in joint ventures - other 2 21
* subsidiaries net of cash disposed, separation and
transaction costs - infrastructure concessions 17 23
* subsidiaries net of cash disposed, separation and
transaction costs - other 14 16
- property, plant and equipment 9 7
- other investments 5 10
----------------------------------------------------------------------- ----- ----- -----
Net cash from investing activities 164 57
------------------------------------------------------------------------ ----- ----- -----
Cash flows from financing activities
Purchase of ordinary shares (4) (17)
Proceeds
from: - issue of ordinary shares - 1
- other new loans - infrastructure concessions 19.4 65 79
- other new loans - other 19.4 52 -
Repayments
of: - loans - infrastructure concessions 19.4 (25) (11)
- loans - other 19.4 (1) (1)
Ordinary dividends paid 11 (6) -
Interest paid - infrastructure concessions (24) (19)
Interest paid - other (48) (32)
Preference dividends paid (12) (11)
------------------------------------------------------------------------ ----- ----- -----
Net cash used in financing activities (3) (11)
------------------------------------------------------------------------ ----- ----- -----
Net increase/(decrease) in cash and cash
equivalents 19.4 25 (83)
Effects of exchange rate changes 80 1
Cash and cash equivalents at beginning of
year 663 727
Net decrease in cash within assets held for
sale - 18
------------------------------------------------------------------------ ----- ----- -----
Cash and cash equivalents at end of year 19.2 768 663
------------------------------------------------------------------------ ----- ----- -----
(1) Before non-underlying items (Note 8).
(2) Re-presented to show assets that are held by the Group to
generate rental income and/or capital appreciation separately from
property, plant and equipment. These assets meet the definition of
investment properties and have been reclassified accordingly.
Notes to the financial statements
1 Basis of accounting
The annual financial statements have been prepared on a going
concern basis and in accordance with International Financial
Reporting Standards (IFRS) as adopted by the European Union and
therefore comply with Article 4 of the EU IAS Regulation and with
those parts of the Companies Act 2006 that are applicable to
companies reporting under IFRS. The Group has applied all
accounting standards and interpretations issued by the
International Accounting Standards Board (IASB) and International
Financial Reporting Interpretations Committee as adopted by the
European Union and effective for accounting periods beginning on 1
January 2016. The presentational currency of the Group is
sterling.
The financial information in this announcement, which was
approved by the Board of Directors on 15 March 2017, does not
constitute the Company's statutory accounts for the years ended 31
December 2016 or 2015, but is derived from those accounts.
Statutory accounts for 2015 have been delivered to the Registrar of
Companies and those for 2016 will be delivered following the
Company's Annual General Meeting. The auditor has reported on the
2016 accounts; the report is unqualified, did not draw attention to
any matters by way of emphasis without qualifying the report and
did not contain statements under Section 498(2) or (3) of the
Companies Act 2006.
Whilst the financial information included in this preliminary
announcement has been computed in accordance with IFRS, this
announcement does not itself contain sufficient information to
comply with IFRS. The Company expects to publish full financial
statements for the Group that comply with IFRS in April 2017.
2 Going concern
The Directors have acknowledged the guidance 'Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009'
published by the Financial Reporting Council in October 2009 and
consider it reasonable to assume that the Group has adequate
resources to continue for the foreseeable future and, for this
reason, have continued to adopt the going concern basis in
preparing the financial statements. Further information is provided
within the Other Financial Items section.
3 Accounting policies
3.1 Judgements and key sources of estimation uncertainty
The Group's principal judgements and key sources of uncertainty
are set out in Note 2.27 of the Annual Report and Accounts
2016.
Across Construction Services there remain a small number of
long-term and complex projects where the Group has incorporated
significant judgements over contractual entitlements. The range of
potential outcomes could result in a materially positive or
negative swing to underlying profitability and cash flow. In the
UK, the majority of these contracts are within Major Projects.
Outside the UK, this primarily relates to a number of significant
contracts in Hong Kong where the range of potential outcomes could
result in a materially positive or negative swing to profitability.
The majority of these claims are expected to reach commercial
settlement by 2018.
3.2 Adoption of new and revised standards
The following accounting standards, interpretations and
amendments have been adopted by the Group in the current
period:
-- Amendments to the following standards:
o IFRS 11 Accounting for Acquisitions of Interests in Joint
Operations
o IAS 1 Disclosure Initiative
o IAS 16 and IAS 38: Clarification of Acceptable Methods of
Depreciation and Amortisation
o IAS 16 and IAS 41: Agricultural: Bearer Plants
o IAS 27 Equity Method in Separate Financial Statements
o IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the
Consolidation Exemption
o Improvements to IFRSs (2012 - 2014).
The above new and amended standards do not have a material
effect on the Group.
3.3 Accounting standards not yet adopted by the Group
The following accounting standards, interpretations and
amendments have been issued by the IASB but had either not been
adopted by the European Union or were not yet effective in the
European Union at 31 December 2016:
-- IFRS 9 Financial Instruments
-- IFRS 14 Regulatory Deferral Accounts
-- IFRS 15 Revenue from Contracts with Customers
-- IFRS 16 Leases
-- Amendments to the following standards:
o IAS 7 Disclosure Initiative
o IAS 12 Recognition of Deferred Tax Assets for Unrealised
Losses
o IAS 40 Transfers of Investment Property
o IFRS 2 Classification and Measurement of Share-based Payment
Transactions
o IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts
o IFRS 10 and IAS 28: Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
o Clarifications to IFRS 15 Revenue from Contracts with
Customers
o IFRIC 22 Foreign Currency Transactions and Advance
Consideration
o Improvements to IFRSs (2014 - 2016).
The Directors continue to assess the impact of IFRS 9, IFRS 15
and IFRS 16 but do not expect the other standards above to have a
material quantitative effect.
4 Exchange rates
The following key exchange rates were applied in these financial
statements.
Average rates
GBP1 buys 2016 2015 Change
---------- ----- ----- -------
US$ 1.35 1.53 (11.8)%
HK$ 10.51 11.84 (11.2)%
Euro 1.23 1.37 (10.2)%
---------- ----- ----- -------
Closing rates
GBP1 buys 2016 2015 Change
---------- ---- ----- -------
US$ 1.23 1.48 (16.9)%
HK$ 9.57 11.43 (16.3)%
Euro 1.17 1.36 (14.0)%
---------- ---- ----- -------
5 Segment analysis
Reportable segments of the Group:
Construction Services - activities resulting in the physical
construction of an asset.
Support Services - activities which support existing assets or
functions such as asset maintenance and refurbishment.
Infrastructure Investments - acquisition, operation and disposal
of infrastructure assets such as roads, hospitals, schools, student
accommodation, military housing, offshore transmission networks,
waste and biomass and other concessions. This segment also includes
the Group's housing development division.
5.1 Total Group
Income statement Certain
- performance by legacy
activity from continuing Construction Support Infrastructure Corporate Rail ES
operations Services Services Investments activities Total Germany contracts Total
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- --------- -------
2016 2016 2016 2016 2016 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- -------------- ---------- ------- ------- --------- -------
Revenue including
share of joint ventures
and associates 6,852 1,103 575 - 8,530 150 3 8,683
Share of revenue
of joint ventures
and associates (1,381) (27) (340) - (1,748) (12) - (1,760)
------------ -------- -------------- ---------- ------- ------- --------- -------
Group revenue 5,471 1,076 235 - 6,782 138 3 6,923
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- --------- -------
Group operating profit/(loss)(^) (50) 33 62 (33) 12 1 (6)
Share of results
of joint ventures
and associates 27 1 27 - 55 - -
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- ---------
Profit/(loss) from
operations(^) (23) 34 89 (33) 67 1 (6)
------- ---------
Non-underlying items
------------ -------- -------------- ---------- -------
* include results from certain legacy Engineering
Services (ES) contracts within Construction Services (6) - - - (6)
* include results from Rail Germany within Construction
Services 1 - - - 1
* amortisation of acquired intangible assets (3) - (6) - (9)
* other non-underlying items (26) (12) - - (38)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
(34) (12) (6) - (52)
------------ -------- -------------- ---------- -------
Profit/(loss) from
operations (57) 22 83 (33) 15
Investment income 75
Finance costs (82)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
Profit before taxation 8
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
(^) Presented before non-underlying items for underlying
operations (Note 8).
5 Segment analysis continued
5.1 Total Group continued
Certain
legacy
Income statement - performance Construction Support Infrastructure Corporate Rail ES
by activity from continuing operations Services Services Investments activities Total Germany contracts Total
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- --------- -------
2015 2015 2015 2015 2015 2015 2015 2015
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- -------------- ---------- ------- ------- --------- -------
Revenue including share of joint
ventures and associates 6,388 1,259 588 - 8,235 179 30 8,444
Share of revenue of joint ventures
and associates (1,168) (25) (278) - (1,471) (18) - (1,489)
------------ -------- -------------- ---------- ------- ------- --------- -------
Group revenue 5,220 1,234 310 - 6,764 161 30 6,955
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- --------- -------
Group operating profit/(loss)(^) (234) 23 91 (33) (153) (3) (8)
Share of results of joint ventures
and associates 5 1 41 - 47 1 -
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- ---------
Profit/(loss) from operations(^) (229) 24 132 (33) (106) (2) (8)
------- ---------
Non-underlying items
------------ -------- -------------- ---------- -------
* include results from certain legacy ES contracts
within Construction Services (8) - - - (8)
* include results from Rail Germany within Construction
Services (2) - - - (2)
* amortisation of acquired intangible assets (4) - (6) - (10)
* other non-underlying items (37) (13) (4) (2) (56)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
(51) (13) (10) (2) (76)
------------ -------- -------------- ----------
Profit/(loss) from operations (280) 11 122 (35) (182)
------------ -------- -------------- ----------
Investment income 52
Finance costs (69)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
Loss before taxation (199)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
(^) Presented before non-underlying items for underlying
operations (Note 8).
Construction Support Infrastructure Corporate
Assets and liabilities by activity Services Services Investments activities Total
------------------------------------ ------------ --------- -------------- ----------- -------
2016 2016 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ --------- -------------- ----------- -------
Due from construction contract
customers 247 133 - - 380
Due to construction contract
customers (492) (50) - - (542)
Inventories and non-construction
work in progress 30 47 24 - 101
Trade and other receivables -
current 882 93 45 46 1,066
Trade and other payables - current (1,421) (218) (57) (56) (1,752)
Provisions - current (126) (5) (3) (13) (147)
------------------------------------ ------------ --------- -------------- ----------- -------
Working capital from continuing
operations* (880) - 9 (23) (894)
------------------------------------ ------------ --------- -------------- ----------- -------
* Includes non-operating items and current working capital.
Total assets 2,306 476 1,080 915 4,777
Total liabilities (2,534) (322) (449) (710) (4,015)
-------------------------- ------- ----- ----- ----- -------
Net assets/(liabilities) (228) 154 631 205 762
-------------------------- ------- ----- ----- ----- -------
5 Segment analysis continued
5.1 Total Group
Assets and liabilities by Construction Support Infrastructure Corporate
activity Services Services Investments activities Total
---------------------------------- ------------ --------- -------------- ----------- -------
2015 2015 2015 2015 2015
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ --------- -------------- ----------- -------
Due from construction contract
customers 234 145 - - 379
Due to construction contract
customers (426) (46) - - (472)
Inventories and non-construction
work in progress 51 67 26 - 144
Trade and other receivables
- current 687 104 59 35 885
Trade and other payables
- current (1,343) (240) (59) (58) (1,700)
Provisions - current (92) (7) (7) (20) (126)
----------------------------------- ------------ --------- -------------- ----------- -------
Working capital from continuing
operations* (889) 23 19 (43) (890)
----------------------------------- ------------ --------- -------------- ----------- -------
* Includes non-operating items and current working capital.
Total assets 1,983 524 1,339 755 4,601
Total liabilities (2,141) (326) (586) (718) (3,771)
--------------------------- ------- ----- ----- ----- -------
Net assets/(liabilities) (158) 198 753 37 830
--------------------------- ------- ----- ----- ----- -------
Other information - continuing Construction Support Infrastructure Corporate
operations Services Services Investments activities Total
---------------------------------- ------------ --------- -------------- ----------- -----
2016 2016 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ --------- -------------- ----------- -----
Capital expenditure on property,
plant and equipment 17 3 14 7 41
Depreciation 14 11 2 3 30
Gain on disposals of interests
in investments (Note 20.2) - - 65 - 65
---------------------------------- ------------ --------- -------------- ----------- -----
2015 2015 2015(2) 2015 2015(2)
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ----- ----- ------- ----- -------
Capital expenditure on property,
plant and equipment(2) 14 12 10 - 36
Depreciation 16 16 2 1 35
Gain on disposals of interests
in investments - - 95 - 95
---------------------------------- ----- ----- ------- ----- -------
(2) Re-presented to show assets that are held by the Group to
generate rental income and/or capital appreciation separately from
property, plant and equipment. These assets meet the definition of
investment properties and have been reclassified accordingly.
Rest
Performance by geographic destination United United of
- continuing operations Kingdom States World Total
------------------------------------------- --------- -------- -------- --------
2016 2016 2016 2016
GBPm GBPm GBPm GBPm
Revenue including share of joint ventures
and associates 3,465 3,533 1,685 8,683
Share of revenue of joint ventures
and associates (202) (104) (1,454) (1,760)
------------------------------------------- --------- -------- -------- --------
Group revenue 3,263 3,429 231 6,923
------------------------------------------- --------- -------- -------- --------
Non-current assets excluding financial
assets and deferred tax assets 948 919 140 2,007
------------------------------------------- --------- -------- -------- --------
2015 2015 2015 2015
GBPm GBPm GBPm GBPm
------------------------------------------- --------- -------- -------- --------
Revenue including share of joint ventures
and associates 3,843 3,238 1,363 8,444
Share of revenue of joint ventures
and associates (185) (170) (1,134) (1,489)
------------------------------------------- --------- -------- -------- --------
Group revenue 3,658 3,068 229 6,955
------------------------------------------- --------- -------- -------- --------
Non-current assets excluding financial
assets and deferred tax assets 1,060 764 80 1,904
------------------------------------------- --------- -------- -------- --------
5 Segment analysis continued
5.2 Infrastructure Investments
Share
Share of
of joint joint
ventures ventures
and and
associates(+) associates(+)
(Note (Note
Group 14) Total Group 14) Total
2016 2016 2016 2015 2015 2015
Underlying profit from operations(1) GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ --------------- ------ ------ --------------- ------
UK^ 6 14 20 3 30 33
North America 16 13 29 17 8 25
Infrastructure Fund - - - - 3 3
Gain on disposals of interests
in investments 65 - 65 95 - 95
---------------------------------------- ------ --------------- ------ ------ --------------- ------
87 27 114 115 41 156
Bidding costs and overheads (25) - (25) (24) - (24)
---------------------------------------- ------ --------------- ------ ------ --------------- ------
62 27 89 91 41 132
---------------------------------------- ------ --------------- ------ ------ --------------- ------
(+) The Group's share of the results of joint ventures and
associates is disclosed net of investment income, finance costs and
taxation.
(^) Including Singapore and Australia.
(1) Before non-underlying items (Note 8).
6 Investment income
2016 2015
Continuing operations GBPm GBPm
---------------------------------------------- ----- -----
Subordinated debt interest receivable 29 24
Interest receivable on PPP financial assets 21 24
Gain on foreign currency deposits 19 -
Other interest receivable and similar income 6 4
---------------------------------------------- ----- -----
75 52
---------------------------------------------- ----- -----
7 Finance costs
2016 2015
Continuing operations GBPm GBPm
-------------------------------------------------------- ----- --------
Non-recourse borrowings - bank loans and overdrafts 24 19
Preference shares - finance cost 12 11
- accretion 2 2
Convertible bonds - finance cost 5 5
- accretion 7 6
US private placement - finance cost 13 11
Other interest payable - committed facilities 4 5
- letter of credit fees 3 3
- other finance charges 8 4
Net finance cost on pension scheme assets and
obligations (Note 17) 4 3
-------------------------------------------------------- ----- --------
82 69
-------------------------------------------------------- ----- --------
8 Non-underlying items
2016 2015
GBPm GBPm
-------------------------------------------------------------- ----- -----
Items (charged against)/credited to profit
8.1 Continuing operations
8.1.1 Trading results of Rail Germany (including
GBP10m (2015: GBP13m) of other net operating
expenses) 1 (3)
8.1.2 Results of certain legacy ES contracts (6) (8)
8.1.3 Amortisation of acquired intangible assets (9) (10)
8.1.4 Other non-underlying items:
----- -----
- Build to Last transformation costs (14) (23)
- provision increases resulting from revised
legal guidelines and settlements (25) -
- release of Trans4m provisions on liquidation 8 -
- provision increases resulting from reassessment
of industrial disease related liabilities (14) -
- gain on sale of Balfour Beatty Infrastructure
Partners 3 -
- impairment of land/goodwill relating to
Blackpool Airport (3) (4)
- gain on disposal of Signalling Solutions
Ltd 3 16
- gain/(loss) on disposal and impairment
of parts of Rail Germany 2 (10)
- pension fund settlement gain 1 3
- restructuring costs relating to Heery and
Rail Germany - (9)
- cost of implementing the shared service
centre in the UK - (8)
- impairment of IT intangible asset - (17)
Total other non-underlying items from continuing
operations (39) (52)
-------------------------------------------------------------- ----- -----
(53) (73)
8.1.5 Share of results of joint ventures and associates:
----- -----
- release of Trans4m provisions on liquidation 1 -
- Rail Germany - (3)
----- -----
Non-underlying items credited/(charged) to share
of results of joint ventures and associates 1 (3)
Charged against profit/(loss) before taxation
from continuing operations (52) (76)
8.1.6 Tax on items above 4 4
Non-underlying items charged against profit/(loss)
for the year from continuing operations (48) (72)
8.2 Discontinued operations
8.2.1 Other non-underlying items:
----- -----
- gain on disposal of Parsons Brinckerhoff 24 5
- loss on disposal of Rail Italy - (4)
Credited to profit/(loss) before taxation from
discontinued operations 24 1
8.2.2 Tax on items above - -
Non-underlying items credited to profit/(loss)
for the year from discontinued operations 24 1
-------------------------------------------------------------- ----- -----
Charged against profit/(loss) for the year (24) (71)
-------------------------------------------------------------- ----- -----
8 Non-underlying items continued
Continuing operations
8.1.1 Rail Germany was reclassified from discontinued operations
in 2014 and has continued to be presented as part of the Group's
non-underlying items within continuing operations. In 2016, the
remaining parts of Rail Germany generated a profit before tax
excluding share of joint ventures and associates of GBP1m (2015:
GBP3m loss before tax).
8.1.2 The Group has continued to present the results of certain
external legacy Engineering Services (ES) contracts in
non-underlying items. These contracts were classified as
non-underlying items in 2014 as the performance of these contracts
was linked to poor legacy management and in regions where ES has
withdrawn from tendering for third-party work. These contracts
resulted in a loss before tax for the Group of GBP6m in 2016 (2015:
GBP8m). No tax credit has been recognised on this loss.
8.1.3 The amortisation of acquired intangible assets from
continuing operations comprises: customer contracts GBP6m (2015:
GBP6m); customer relationships GBP3m (2015: GBP3m); and brand names
GBPnil (2015: GBP1m). These have been included as non-underlying
items as they relate to costs arising on acquisition of
businesses.
The charge was recognised in the following segments:
Construction Services GBP3m (2015: GBP4m) and Infrastructure
Investments GBP6m (2015: GBP6m).
8.1.4.1 The Group launched its Build to Last transformation
programme in February 2015. The transformation programme is aimed
to drive continual improvement across all of the Group's businesses
and realise operational efficiencies. As a result of this
programme, restructuring costs of GBP14m were incurred in 2016
relating to: Construction Services GBP12m; Support Services GBP1m;
and Corporate GBP1m. These restructuring costs comprise: redundancy
costs GBP9m; external advisers GBP2m; property-related costs GBP1m;
and other restructuring costs GBP2m.
In 2015, the Group incurred restructuring costs of GBP23m
relating to: Construction Services GBP14m; Support Services GBP6m;
and Corporate GBP3m. These restructuring costs comprise: redundancy
costs GBP13m; external advisers GBP5m; property-related costs
GBP1m; and other restructuring costs GBP4m.
8.1.4.2 In 2016, potential liabilities on historical health and
safety breaches were reassessed following new sentencing guidelines
introduced and the settlement of other historical claims previously
treated as non-underlying items. As a result of this, the Group has
revised its legal provisioning levels relating to these items,
recognising an expense of GBP25m. This has been presented as
non-underlying because its size would otherwise distort the
underlying financial performance achieved by the Group and the
events giving rise to these expenses occurred in prior years.
The charge was recognised in the following segments:
Construction Services GBP13m and Support Services GBP12m.
8.1.4.3 In 2016, the Group has released all remaining provisions
relating to Trans4m Ltd (Trans4m) amounting to GBP9m, GBP1m of
which has been recognised at the joint venture level. Trans4m was
an equal joint operation between Balfour Beatty and three other
partner shareholders and was contracted to Metronet as part of the
London Underground PPP. The provisions were originally recorded in
non-underlying items in 2007. Trans4m went into creditors'
voluntary liquidation on 27 June 2016.
The credit was recognised in the following segments:
Construction Services GBP8m and Support Services GBP1m.
8 Non-underlying items continued
Continuing operations continued
8.1.4.4 In 2016, the Group commissioned a revised independent
actuarial report on its exposure to industrial disease related
liabilities. These are mostly for asbestos-related claims in
relation to events pre-1972 which are not insured by the Financial
Services Compensation Scheme. As a result of the findings within
this report, the Group has increased its provision held with
respect to industrial disease related liabilities, resulting in a
GBP14m charge to the income statement. This has been presented as
non-underlying because its size would otherwise distort the
underlying financial performance achieved by the Group and the
events giving rise to these liabilities occurred in prior
years.
The entire charge was recognised within Construction
Services.
8.1.4.5 In 2016, the Group disposed of its interest in Balfour
Beatty Infrastructure Partners, comprising its 17.8% interest in
the Infrastructure Fund and 100% interest in the fund's advisor.
Initial consideration of GBP48m was received, resulting in a gain
of GBP3m to the Group. Refer to Notes 20.2.4 and 20.2.5.
8.1.4.6 In 2016, an impairment of GBP3m was recognised on land
held at Blackpool Airport. The land was originally held in
connection with the Group's former operation of the airport. In
2015, goodwill amounting to GBP4m in relation to Blackpool Airport
was fully written down.
8.1.4.7 On 27 May 2015, the Group disposed of its 50% interest
in Signalling Solutions Ltd (SSL) for a cash consideration of
GBP18m, resulting in a GBP16m gain in 2015. In 2016, additional
consideration received resulted in a further gain of GBP2m being
reported. In addition to this, a GBP1m pension settlement gain
arose as a result of transferring pension liabilities relating to
the employees of SSL to the new employer. This gain was recognised
within Construction Services.
8.1.4.8 In September 2016, the Group completed the disposal of
parts of Rail Germany to Tianjin Keyvia Electric Co Ltd for a cash
consideration of GBP15m. Refer to Note 20.2.7. This sale resulted
in GBP2m gain as a result of recycling of foreign currency
reserves. The related assets disposed were impaired by GBP11m in
2015 to reflect the value of the agreed consideration. GBP4m of
that impairment was recognised at the joint venture level. Refer to
Note 8.1.5.2.
In 2015, the Group disposed of other parts of Rail Germany to
the Rhomberg Sersa Rail Group for a cash consideration of GBP9m
resulting in a GBP3m loss in 2015.
8.1.4.9 A settlement gain of GBP1m (2015: GBP3m) was recognised
in relation to commutation options offered by the Balfour Beatty
Pension Fund since 2014. Refer to Note 17.
8.1.4.10 In 2015, following the disposal of Parsons Brinckerhoff
(PB) on 31 October 2014, the Group incurred GBP4m of costs relating
to restructuring the continuing operations of Heery Inc. which was
previously reliant on PB for its back office functions.
In 2015, additional restructuring costs of GBP5m were incurred
in Rail Germany relating to the restructuring of overheads post
completion of disposal of parts of the business. These
restructuring costs comprise redundancy costs of GBP1m and other
restructuring costs of GBP4m.
Both Heery and Rail Germany are included within the Construction
Services segment.
8.1.4.11 In 2015, transitioning other operating companies to the
UK shared service centre in Newcastle-upon-Tyne and increasing the
scope led to incremental costs of GBP8m.
8 Non-underlying items continued
Continuing operations continued
8.14.12 In 2015, an impairment charge of GBP17m was recorded to
write down intangible assets in relation to costs capitalised in
the transformation of the Group's UK IT estate from a federated to
a more centralised model.
The charge was recognised in the following segments:
Construction Services GBP9m; Support Services GBP7m; and Corporate
GBP1m.
8.1.5.1 Refer to Note 8.1.4.3.8.1.5.2 In 2016, the joint venture
within Rail Germany generated a trading gain of GBPnil for the
Group (2015: GBP1m gain). In addition to this, a GBP4m impairment
charge was recognised on the joint venture following an agreement
to sell parts of Rail Germany to Tianjin Keyvia Electric Co Ltd.
Refer to Note 8.1.4.8.
8.1.6 The non-underlying items charged against Group operating
profit from continuing operations gave rise to a tax credit of
GBP4m comprising: GBP3m tax credit on amortisation of acquired
intangible assets; GBP3m charge on the results of Rail Germany; and
GBP4m credit on other non-underlying items (2015: GBP4m comprising:
GBP2m charge on the results of Rail Germany; GBP4m credit on
amortisation of acquired intangible assets; and GBP2m credit on
other non-underlying items).
Discontinued operations
8.2.1.1 In 2015, the Group finalised the cash consideration due
on the disposal of Parsons Brinckerhoff (PB) amounting to
additional consideration for the Group of GBP16m of which GBP7m was
recognised as a receivable at the date of disposal in the prior
period. In accordance with the stock purchase agreement, the Group
received cash of GBP20m relating to historical tax matters (GBP16m
of which was recognised as a current tax receivable in the prior
period) and the Group also released an indemnity provision relating
to an historical legal claim of GBP3m which was successfully
settled during the period. Offsetting this additional
non-underlying gain on disposal were separation costs incurred
during the period of GBP4m, of which GBP2m were paid during the
period, and the write-off of a deferred tax asset of GBP7m
resulting in an overall net gain of GBP5m. Transaction costs of
GBP9m, which were accrued in the prior period, were paid in the
year.
Subsequently in 2016, the Group reached a settlement with the
purchaser of PB in relation to outstanding tax matters and
indemnities. The Group received an additional GBP9m as a result of
this settlement. At the same time, provisions in relation to these
matters have been released, resulting in an overall gain to the
Group of GBP24m.
8.2.1.2 On 11 March 2015, as part of the ongoing process to exit
the Mainland European rail businesses, the Group disposed of Rail
Italy for a cash consideration of GBP5m, resulting in a GBP4m loss
being recognised in the year.
8.2.2 The non-underlying items credited to profit from
discontinued operations gave rise to a tax charge of GBPnil (2015:
GBPnil).
9 Income taxes
Non-underlying
Underlying items
(Note
Items(1) 8) Total Total
2016 2016 2016 2015
Continuing operations(x) GBPm GBPm GBPm GBPm
-------------------------------------- ------------ --------------- ------- -------
Total UK tax 2 - 2 15
Total non-UK tax 10 (4) 6 (8)
-------------------------------------- ------------ --------------- ------- -------
Total tax charge/(credit) 12 (4) 8 7
-------------------------------------- ------------ --------------- ------- -------
Continuing operations(x)
UK current tax
- current tax on profits for
the year at 20% (2015: 20.25%) (1) - (1) 3
- adjustments in respect of previous
periods (6) - (6) (5)
-------------------------------------- ------------ --------------- ------- -------
(7) - (7) (2)
-------------------------------------- ------------ --------------- ------- -------
Non-UK current tax
- current tax on profits for
the year 1 2 3 4
- adjustments in respect of previous
periods (9) (1) (10) (5)
-------------------------------------- ------------ --------------- ------- -------
(8) 1 (7) (1)
-------------------------------------- ------------ --------------- ------- -------
Total current tax (15) 1 (14) (3)
-------------------------------------- ------------ --------------- ------- -------
UK deferred tax
- origination and reversal of
temporary differences 9 - 9 8
- adjustments in respect of previous
periods 3 - 3 4
- UK corporation tax rate change (3) - (3) 5
-------------------------------------- ------------ --------------- ------- -------
9 - 9 17
-------------------------------------- ------------ --------------- ------- -------
Non-UK deferred tax
- origination and reversal of
temporary differences 13 (5) 8 (12)
- adjustments in respect of previous
periods 5 - 5 5
-------------------------------------- ------------ --------------- ------- -------
18 (5) 13 (7)
-------------------------------------- ------------ --------------- ------- -------
Total deferred tax 27 (5) 22 10
-------------------------------------- ------------ --------------- ------- -------
Total tax charge/(credit) from
continuing operations 12 (4) 8 7
-------------------------------------- ------------ --------------- ------- -------
(x) Excluding joint ventures and associates.
(1) Before non-underlying items (Note 8).
The standard rate of corporation tax in the UK was 20% during
the year. The rate will be reduced to 19% with effect from 1 April
2017, with a further reduction to 17% from 1 April 2020. These
changes were all substantively enacted prior to the end of the
year. The net impact of these rate changes was a GBP3m credit
(2015: GBP5m charge) to the income statement and a GBPnil charge
(2015: GBP2m) to equity.
The Group tax charge excludes amounts for joint ventures and
associates (refer to Note 14), except where tax is levied at the
Group level.
In addition to the Group tax charge, tax of GBP16m is credited
(2015: GBP49m) directly to other comprehensive income, comprising:
a deferred tax credit of GBP1m for subsidiaries (2015: GBP16m); and
a deferred tax credit in respect of joint ventures and associates
of GBP15m (2015: GBP33m).
10 Earnings per ordinary share
2016 2015
-------------- --------------
Basic Diluted Basic Diluted
Earnings GBPm GBPm GBPm GBPm
------------------------------------- ----- ------- ----- -------
Continuing operations
Earnings/(loss) - - (206) (206)
Amortisation of acquired intangible
assets - net of tax credit of GBP3m
(2015: GBP4m) 6 6 6 6
Other non-underlying items - net of
tax credit of GBP1m (2015: GBPnil) 42 42 66 66
Underlying earnings/(loss) 48 48 (134) (134)
------------------------------------- ----- ------- ----- -------
Discontinued operations
Earnings 24 24 - -
Other non-underlying items (24) (24) (1) (1)
------------------------------------- ----- ------- ----- -------
Underlying loss - - (1) (1)
------------------------------------- ----- ------- ----- -------
Total operations
Earnings/(loss) 24 24 (206) (206)
Amortisation of acquired intangible
assets - net of tax credit of GBP3m
(2015: GBP4m) 6 6 6 6
Other non-underlying items - net of
tax credit of GBP1m (2015: GBPnil) 18 18 65 65
------------------------------------- ----- ------- ----- -------
Underlying earnings/(loss) 48 48 (135) (135)
------------------------------------- ----- ------- ----- -------
Basic Diluted Basic Diluted
m m m m
------------------------------------ ----- ------- ----- -------
Weighted average number of ordinary
shares 680 684 682 682
------------------------------------ ----- ------- ----- -------
Basic Diluted Basic Diluted
Earnings per share pence pence pence pence
---------------------------------------- ------ ------- ------ -------
Continuing operations
Earnings/(loss) per ordinary share - - (30.2) (30.2)
Amortisation of acquired intangible
assets 0.9 0.9 0.8 0.8
Other non-underlying items 6.1 6.1 9.7 9.7
Underlying earnings/(loss) per ordinary
share 7.0 7.0 (19.7) (19.7)
---------------------------------------- ------ ------- ------ -------
Discontinued operations
Earnings per ordinary share 3.5 3.5 0.1 0.1
Other non-underlying items (3.5) (3.5) (0.2) (0.2)
---------------------------------------- ------ ------- ------ -------
Underlying loss per ordinary share - - (0.1) (0.1)
---------------------------------------- ------ ------- ------ -------
Total operations
Earnings/(loss) per ordinary share 3.5 3.5 (30.1) (30.1)
Amortisation of acquired intangible
assets 0.9 0.9 0.8 0.8
Other non-underlying items 2.6 2.6 9.5 9.5
---------------------------------------- ------ ------- ------ -------
Underlying earnings/(loss) per ordinary
share 7.0 7.0 (19.8) (19.8)
---------------------------------------- ------ ------- ------ -------
11 Dividends on ordinary shares
2016 2015
-------------- --------------
Per Per
share Amount share Amount
pence GBPm pence GBPm
---------------------------------- ------ ------ ------ ------
Proposed dividends for the year
Interim - current year 0.9 6 - -
Final - current year 1.8 12 - -
2.7 18 - -
---------------------------------- ------ ------ ------ ------
Recognised dividends for the year
Final - prior year - -
Interim - current year 6 -
6 -
---------------------------------- ------ ------ ------ ------
There were no proposed or recognised dividends for 2015. The
Board took the decision to suspend the dividend in 2015, to ensure
balance sheet strength was maintained during the initial stages of
Build to Last. Following the demonstrable progress made by the
Group in the first year of the transformation programme and in the
expectation of further solid and measurable improvements, the Board
is recommending a final dividend of 1.8p, following the interim
dividend declared at the half year of 0.9p. The Board continues to
anticipate a progressive dividend policy going forward.
The interim 2016 dividend was paid on 2 December 2016. Subject
to approval at the Annual General Meeting on 18 May 2017, the final
2016 dividend will be paid on 7 July 2017 to holders on the
register on 21 April 2017 by direct credit or, where no mandate has
been given, by cheque posted on 6 July 2017 payable on 7 July 2017.
The ordinary shares will be quoted ex-dividend on 20 April
2017.
12 Intangible assets - goodwill
Accumulated
impairment Carrying
Cost losses amount
GBPm GBPm GBPm
--------------------------------- ----- ----------- --------
At 1 January 2016 997 (153) 844
Currency translation differences 116 (25) 91
Additions (refer to Note 20.1) 2 - 2
Disposals (5) 5 -
At 31 December 2016 1,110 (173) 937
--------------------------------- ----- ----------- --------
2016 2015
----------------- -----------------
Pre-tax Pre-tax
discount discount
Carrying amounts of goodwill by rate rate
cash-generating unit GBPm % GBPm %
-------------------------------------- ----- ---------- ----- ----------
UK Regional and Engineering Services 248 10.2 248 10.2
Balfour Beatty Construction Group
Inc. 452 12.6 377 12.6
Rail UK 68 10.4 66 10.4
Gas & Water 58 10.2 58 10.3
Balfour Beatty Communities US 54 12.6 45 12.6
Other 57 10.2-12.8 50 10.3-12.7
-------------------------------------- ----- ---------- ----- ----------
Group total 937 844
-------------------------------------- ----- ---------- ----- ----------
12 Intangible assets - goodwill continued
The recoverable amount of goodwill is based on value-in-use, a
key input of which is forecast cash flows. The Group's cash flow
forecasts are based on the expected workload of each
cash-generating unit (CGU), giving consideration to the current
level of confirmed and anticipated orders. Cash flow forecasts for
the next three years are based on the Group's Three Year Plan,
which covers the period from 2017 to 2019 and includes the
stabilisation and recovery of the Construction Services UK business
to more normal levels of performance. The cash flow forecasts for
each CGU were compiled from each of its constituent business units
as part of the Group's annual financial planning process.
The other key inputs in assessing each CGU are its long-term
growth rate and discount rate. The discount rates have been
calculated using the Weighted Average Cost of Capital (WACC)
method, which takes account of the Group's capital structure
(financial risk) as well as the nature of each CGU's business
(operational risk). Long-term growth rates are assumed to be the
estimated future GDP growth rates based on published independent
forecasts for the country or countries in which each CGU operates,
less 1.0% to reflect current economic uncertainties and their
consequent estimated effect on public sector spending on
infrastructure.
In the derivation of each CGU's value-in-use, a terminal value
is assumed based on a multiple of earnings before interest and tax.
The multiple is applied to a terminal cash flow, which is the
normalised cash flow in the last year of the forecast period. The
EBIT multiple is calculated using the Gordon Growth Model and is a
factor of the discount rate and growth rate for each CGU. The
nominal terminal value is discounted to present value.
2016 2015
--------------------------------- ---------------------------------
Nominal Nominal
long-term long-term
Real growth Real growth
Inflation growth rate Inflation growth rate
rate rate applied rate rate applied
% % % % % %
----------------------------- ---------- -------- ----------- ---------- -------- -----------
UK Regional and Engineering
Services 1.8 1.1 2.9 1.6 1.2 2.8
Balfour Beatty Construction
Group Inc. 1.9 1.5 3.4 1.6 1.7 3.3
Rail UK 1.8 1.1 2.9 1.6 1.2 2.8
Gas & Water 1.8 1.1 2.9 1.6 1.2 2.8
Balfour Beatty Communities
US 1.9 1.5 3.4 1.6 1.7 3.3
Other 1.9 1.4 3.3 1.6 1.7 3.3
----------------------------- ---------- -------- ----------- ---------- -------- -----------
Sensitivities
The Group's impairment review is sensitive to changes in the key
assumptions used. The major assumptions that result in significant
sensitivities are the discount rate and the long-term growth
rate.
Using a pre-tax discount rate of 12.6% and nominal long-term
growth rate of 3.4% the recoverable amount of the remaining
goodwill in Balfour Beatty Construction Group Inc. is GBP594m based
on value-in-use, with consequent headroom of GBP142m. A 1.0%
increase in the discount rate and a 1.0% reduction in the growth
rate would lead to an impairment of GBP41m.
Except as noted above, a reasonable possible change in key
assumptions will not give rise to an impairment in any of the
Group's CGUs.
In light of the significant, albeit reduced, losses incurred
within the construction business in 2016 the Group has considered
whether a reasonable possible change in assumptions would lead to
an impairment of the goodwill in the related CGUs and concluded
that it is not the case. The stabilisation and recovery of the
Group's Construction Services UK business to more normal levels of
performance is however a key assumption underpinning the cash flow
forecasts used to assess the recoverable amount of the related
goodwill.
13 Intangible assets - other
Accumulated Carrying
Cost amortisation amount
GBPm GBPm GBPm
-------------------------------------------- ----- ------------- --------
At 1 January 2016 489 (267) 222
Currency translation differences 50 (33) 17
Additions 11 - 11
Disposals (7) 4 (3)
Charge for the year - (21) (21)
Impairment charge - (1) (1)
Removal of fully amortised intangible asset (48) 48 -
At 31 December 2016 495 (270) 225
-------------------------------------------- ----- ------------- --------
Other intangible assets comprise: acquired intangible assets of
customer contracts, customer relationships, and brand names;
Infrastructure Investments' intangible assets on a student
accommodation project in which the Group has demand risk; and
software and other.
14 Joint ventures and associates
Infrastructure
Investments
------------------
Construction Support North
Services(+) Services UK^ America Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ------------ --------- ------- --------- -------
Income statement - continuing
operations
Revenue(1) 1,381 27 220 120 1,748
--------------------------------------- ------------ --------- ------- --------- -------
Underlying operating profit(1) 29 1 6 15 51
Investment income 2 - 126 7 135
Finance costs (1) - (114) (9) (124)
--------------------------------------- ------------ --------- ------- --------- -------
Profit before taxation(1) 30 1 18 13 62
Taxation (3) - (4) - (7)
--------------------------------------- ------------ --------- ------- --------- -------
Profit after taxation before
non-underlying items 27 1 14 13 55
Share of results within non-underlying
items 1 - - - 1
--------------------------------------- ------------ --------- ------- --------- -------
Profit after taxation 28 1 14 13 56
Balance sheet
Intangible assets:
- goodwill 35 - - - 35
- Infrastructure Investments
intangible - - 19 - 19
- other 3 - 12 - 15
Property, plant and equipment 29 - 33 - 62
Investment properties - - - 61 61
Investments in joint ventures
and associates 4 - - - 4
PPP financial assets - - 1,941 188 2,129
Military housing projects - - - 121 121
Net cash/(borrowings) 341 - (1,340) (182) (1,181)
Other net (liabilities)/assets (268) 4 (331) (42) (637)
--------------------------------------- ------------ --------- ------- --------- -------
Net assets 144 4 334 146 628
--------------------------------------- ------------ --------- ------- --------- -------
^ Including Singapore and Australia. (+) Excludes the Group's
share of the balance sheets of BK Gulf LLC and Dutco Balfour Beatty
LLC (Dutco) as this is presented within provisions for the reasons
set out below.
(1) Before non-underlying items (Note 8).
14 Joint ventures and associates continued
The Group has recognised losses in relation to Dutco(+) in
excess of the carrying value of its investment as the Group has
constructive obligations to provide further funding to make good
these losses. At 31 December 2016, these losses amounted to GBP12m
(2015: GBP9m) and have been classified as other provisions.
As detailed in Note 24, on 26 January 2017 the Group reached
agreement to sell its 49% interests in Dutco(+) to its joint
venture partner. The sale subsequently completed on 1 March
2017.
The Group's investment in military housing joint ventures' and
associates' projects is recognised at its remaining equity
investment plus the value of the Group's accrued returns from the
underlying projects.
2015
----------------------------------------------------------------------
Infrastructure
Investments
------------------------------------
Construction Support North Infrastructure
Services Services UK^ America Fund Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Income statement - continuing
operations
Revenue(1) 1,168 25 187 91 - 1,471
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Underlying operating profit(1) 8 1 8 11 3 31
Investment income 2 - 160 4 - 166
Finance costs (2) - (129) (7) - (138)
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Profit before taxation(1) 8 1 39 8 3 59
Taxation (3) - (9) - - (12)
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Profit after taxation before
non-underlying items 5 1 30 8 3 47
Share of results within
non-underlying items (3) - - - - (3)
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Profit after taxation 2 1 30 8 3 44
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Balance sheet
Intangible assets:
- goodwill 30 - - - - 30
- Infrastructure Investments
intangible - - 25 - - 25
- other - - 11 - - 11
Property, plant and equipment(2) 38 - 26 - - 64
Investment properties(2) - - - 39 - 39
Investments in joint ventures
and associates 5 - - - - 5
PPP financial assets - - 2,159 77 - 2,236
Military housing projects - - - 101 - 101
Infrastructure Fund Investment - - - - 38 38
Net cash/(borrowings) 234 - (1,525) (82) - (1,373)
Other net (liabilities)/assets (204) 4 (291) (23) - (514)
Net assets 103 4 405 112 38 662
Reclassify net liabilities
relating to Dutco(+) to
provisions 9 - - - - 9
--------------------------------- ------------ --------- ------- --------- ---------------- -------
Adjusted net assets 112 4 405 112 38 671
--------------------------------- ------------ --------- ------- --------- ---------------- -------
^ Including Singapore and Australia.
(+) Represents the combined results of BK Gulf LLC and Dutco
Balfour Beatty LLC as both joint ventures have common ownership and
report under the same management structure.
(1) Before non-underlying items (Note 8).
(2) Re-presented to show assets that are held by the Group to
generate rental income and/or capital appreciation separately from
property, plant and equipment. These assets meet the definition of
investment properties and have been reclassified accordingly.
15 Trade and other receivables
2016 2015
GBPm GBPm
----------------------------------------------------- ------ ------
Current
Trade receivables 653 506
Less: provision for impairment of trade receivables (7) (11)
----------------------------------------------------- ------ ------
646 495
Other receivables 60 45
Due from joint ventures and associates 58 55
Due from joint operation partners 7 10
Contract retentions receivable(+) 242 202
Accrued income 17 24
Prepayments 36 54
1,066 885
----------------------------------------------------- ------ ------
Non-current
Other receivables 4 2
Due from joint ventures and associates 25 12
Contract retentions receivable(+) 151 100
180 114
----------------------------------------------------- ------ ------
Total trade and other receivables 1,246 999
----------------------------------------------------- ------ ------
(+) Including GBP390m (2015: GBP298m) construction contract
retentions receivable.
16 Trade and other payables
2016 2015
GBPm GBPm
---------------------------------------- ------ ------
Current
Trade and other payables 936 838
Accruals 701 755
Deferred income 15 7
VAT, payroll taxes and social security 73 67
Advance payments on contracts 4 -
Due to joint ventures and associates 11 25
Dividends on preference shares 6 5
Due on acquisitions 3 3
Due on disposals (Note 20.2.8) 3 -
---------------------------------------- ------ ------
1,752 1,700
---------------------------------------- ------ ------
Non-current
Trade and other payables 110 86
Accruals 20 18
Deferred income - 1
Due to joint ventures and associates 7 11
Due on acquisitions 14 14
---------------------------------------- ------ ------
151 130
---------------------------------------- ------ ------
Total trade and other payables 1,903 1,830
---------------------------------------- ------ ------
17 Retirement benefit liabilities
IAS 19 Employee Benefits prescribes the accounting for defined
benefit schemes in the Group's financial statements. Obligations
are calculated using the projected unit credit method and
discounted to a net present value using the market yield on
high-quality corporate bonds. The pension expense relating to
current service cost is charged to contracts or overheads based on
the function of scheme members and is included in cost of sales and
net operating expenses. The net finance cost arising from the
expected interest income on plan assets and interest cost on scheme
obligations is included in finance costs. Actuarial gains and
losses are reported in the Statement of Comprehensive Income.
The investment strategy of the Balfour Beatty Pension Fund
(BBPF) is to hold assets of appropriate liquidity and marketability
to generate income and capital growth. The BBPF invests partly in a
diversified range of assets including equities and hedge funds in
anticipation that, over the longer term, they will grow in value
faster than the obligations. The equities are in the form of pooled
funds and are a combination of UK, other developed market and
emerging market equities. The remaining BBPF assets are principally
fixed and index-linked bonds and derivatives, providing protection
against movements in inflation and interest rates and hence
enhancing the resilience of the funding level of the scheme. The
performance of the assets is measured against market indices.
Since 2014, the Group has been offering a commutation option for
pensioner members and dependants with benefits with a value of less
than GBP30,000 and GBP18,000, respectively, to extinguish their
benefits within the BBPF in exchange for a cash lump sum. The
acceptance of this offer by certain members and dependants gave
rise to a settlement event resulting in a decrease in liabilities
of GBP1m (2015: GBP3m), which was recognised in other
non-underlying items. Refer to Note 8.1.4.9.
On 1 July 2015, the Group established a Scottish Limited
Partnership (SLP) structure into which its investment in Consort
Healthcare (Birmingham) Holdings Ltd (Consort Birmingham), which
owns the Group's 40% interest in the Birmingham Hospital PFI
investment, was transferred. The BBPF is a partner in the SLP and
is entitled to a share of the income of the SLP. In accordance with
IFRS 10 Consolidated Financial Statements, the SLP is deemed to be
controlled by the Group, which retains the ability to substitute
the investment in Consort Birmingham for other investments from
time to time. On 29 December 2016 the Group transferred into the
SLP its investment in Holyrood Student Accommodation Holdings Ltd,
which owns the Group's 100% interest in the Edinburgh student
accommodation project.
Under IAS 19, the investment held by the BBPF in the SLP does
not constitute a plan asset and therefore the pension deficit
presented in these financial statements does not reflect the BBPF's
interest in the SLP. Distributions from the SLP to the BBPF will be
reflected in the Group's financial statements as pension
contributions on a cash basis. The first distribution was received
in December 2015 and amounted to GBP1m. A further distribution was
received in 2016 and amounted to GBP1m.
Alongside the establishment of the SLP, agreement was reached to
make a series of deficit payments to the BBPF with the first
payment of GBP4m paid in 2016. A further GBP5m is due in 2017;
GBP7m due in 2018; GBP9m due in 2019; GBP13m due in 2020; GBP17m
due in 2021; GBP22m due in 2022; and GBP25m due in 2023.
A formal triennial funding valuation of the BBPF was carried out
as at 31 March 2016. As a result, the Group agreed to make ongoing
deficit payments in addition to those set out above of GBP5m for
the period from January 2017 to April 2017; GBP17m per annum from
April 2017; GBP19m per annum from April 2018; and GBP3m per annum
from April 2020.
If the dividend cover ratio is below an agreed trigger level
then the contributions set out above may need to be
accelerated.
17 Retirement benefit liabilities continued
This agreement constitutes a minimum funding requirement (MFR)
under IFRIC 14 IAS 19: The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction. The Group has
not recognised any liabilities in relation to this MFR as any
surplus of deficit contributions to the BBPF would be recoverable
by way of a refund and the Group has the unconditional right to the
surplus and controls the run-off of the benefit obligations once
all other obligations of the BBPF have been settled. Implementation
of the draft Amendment to IFRIC 14 when it becomes effective will
not affect this accounting.
Principal actuarial assumptions for the IAS 19 accounting
valuations of the Group's principal schemes
2016 2015
------------------ ------------------
Balfour Balfour
Beatty Railways Beatty Railways
Pension Pension Pension Pension
Fund Scheme Fund Scheme
% % % %
------------------------------------------- -------- -------- -------- --------
Discount rate 2.50 2.50 3.70 3.70
Inflation
rate - RPI 3.20 3.20 3.00 3.00
- CPI 2.00 2.00 1.60 1.60
Future increases in pensionable salary 2.00 2.00 1.60 1.60
Rate of increase in pensions in payment
(or such other rate as is guaranteed) 2.95 2.15 2.85 1.80
------------------------------------------- -------- -------- -------- --------
Number Number Number Number
------------------------------------------- -------- -------- -------- --------
Total number of defined benefit members 31,032 3,077 31,956 3,078
------------------------------------------- -------- -------- -------- --------
In December 2016, following independent advice from the Group's
actuaries, the Group reassessed the difference between RPI and CPI
measures of price inflation from 1.4% in December 2015 to 1.2%
increasing the retirement benefit liability by a further GBP44m
which was recognised in the Statement of Comprehensive Income.
The BBPF actuary undertakes regular mortality investigations
based on the experience exhibited by pensioners of the BBPF and due
to the size of the membership of the BBPF is able to make
comparisons of this experience with the mortality rates set out in
the various published mortality tables. The actuary is also able to
monitor changes in the exhibited mortality over time. This research
is taken into account in the Group's mortality assumptions across
its various defined benefit schemes.
The mortality assumptions as at 31 December 2016 have been
updated to reflect the experience of Balfour Beatty pensioners for
the period 1 April 2005 to 31 March 2016. The mortality tables
adopted for the 2016 IAS 19 valuations are the Self-Administered
Pension Scheme (SAPS) S2 tables (2015: SAPS S2 tables) with a
multiplier of 102% for all male and female members (2015: 102%) and
109% for female widows and dependants (2015: 109%); all with future
improvements in line with the CMI 2015 core projection model (2015:
CMI 2015 core projection model), with long-term improvement rates
of 1.25% per annum and 1.00% per annum for males and females
respectively (2015: 1.25% per annum and 1.00% per annum).
2016 2015
------------------- -------------------
Average Average
life expectancy life expectancy
at 65 years at 65 years
of age of age
------------------- -------------------
Male Female Male Female
---------------------------------------------------------- -------- --------- -------- ---------
Members in receipt of a pension 22.1 23.9 22.1 23.9
Members not yet in receipt of a pension (current age 50) 23.4 25.0 23.4 25.0
---------------------------------------------------------- -------- --------- -------- ---------
17 Retirement benefit liabilities continued
Amounts recognised in the Balance Sheet
2016 2015
--------------------------------------- ---------------------------------------
Balfour Balfour
Beatty Railways Beatty Railways
Pension Pension Other Pension Pension Other
Fund Scheme schemes^ Total Fund Scheme schemes^ Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- -------- -------- ---------- ------- -------- -------- ---------- -------
Present value of obligations (3,683) (416) (56) (4,155) (3,031) (314) (52) (3,397)
Fair value of plan
assets 3,621 303 - 3,924 2,988 263 - 3,251
----------------------------- -------- -------- ---------- ------- -------- -------- ---------- -------
Liabilities in the
balance sheet (62) (113) (56) (231) (43) (51) (52) (146)
----------------------------- -------- -------- ---------- ------- -------- -------- ---------- -------
^ Available-for-sale investments in mutual funds of GBP23m
(2015: GBP20m) are held to satisfy the Group's deferred
compensation obligations.
The defined benefit obligation comprises GBP56m (2015: GBP52m)
arising from wholly unfunded plans and GBP4,099m (2015: GBP3,345m)
arising from plans that are wholly or partly funded.
Movements in the retirement benefit liabilities 2016
for the year GBPm
------------------------------------------------------------------- -----
At 1 January 2016 (146)
Currency translation differences (9)
Current service cost (6)
Interest cost (122)
Interest income 118
- on obligations from reassessing the
Actuarial movements difference between RPI and CPI (44)
- on obligations from changes to other
financial assumptions (806)
- on obligations from changes in demographic
assumptions (51)
- on obligations from experience gains 76
- on assets 704
Contributions
from employer - regular funding 2
- ongoing deficit funding 41
Benefits paid 4
Settlements 2
Businesses disposed 6
At 31 December 2016 (231)
------------------------------------------------------------------- -----
The BBPF includes a defined contribution section with 13,290
members at 31 December 2016 (2015: 13,163 members) with GBP44m
(2015: GBP45m) of contributions paid from continuing operations and
charged in the income statement in respect of this section. The
total net pension cost recognised in the income statement in
respect of employee service for defined benefit and defined
contribution schemes was GBP50m (2015: GBP53m).
Sensitivity of the Group's retirement benefit obligations at 31
December 2016 to different actuarial assumptions
(Decrease)/ (Decrease)/
increase increase
in in
Percentage obligations obligations
points/years % GBPm
--------------------------------------- -------------- ------------- -------------
Increase in discount rate 0.5% (8.0)% (330)
Increase in market expectation of RPI
inflation 0.5% 5.9% 241
Increase in salary growth 0.5% 0.1% 4
Increase in life expectancy 1 year 4.3% 177
--------------------------------------- -------------- ------------- -------------
Sensitivity of the Group's retirement benefit assets at 31
December 2016 to changes in market conditions
(Decrease)/ (Decrease)/
increase increase
in in
Percentage assets assets
points % GBPm
--------------------------------------- ----------- ------------ ------------
Increase in interest rates 0.5% (9.2)% (359)
Increase in market expectation of RPI
inflation 0.5% 4.6% 181
--------------------------------------- ----------- ------------ ------------
18 Share capital
During the year ended 31 December 2016, 1,565,128 (2015:
7,292,588) ordinary shares were purchased for GBP4m (2015: GBP17m)
by the Group's employee discretionary trust to satisfy awards under
the Company's equity-settled share-based payment arrangements.
19 Notes to the statement of cash flows
Continuing
operations
---------------------------
Non-underlying
items
Underlying (Note
items(1) 8) Discontinued Total Total
operations
2016 2016 2016 2016 2015
19.1 Cash (used in)/generated
from operations GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----------- -------------- ------------ ----- -----
Profit/(loss) from operations 67 (52) 24 39 (182)
))
Share of results of joint ventures
and associates (55) (1) - (56) (44)
Depreciation of property, plant
and equipment 29 1 - 30 35
Amortisation of other intangible
assets 12 9 - 21 25
Impairment of IT intangible assets 1 - - 1 17
Pension deficit payments (41) - - (41) (66)
Pension fund settlement gain - (1) - (1) (3)
Movements relating to share-based
payments 7 - - 7 5
Profit on disposal of investments
in infrastructure concessions (65) - - (65) (95)
Net gain on disposal of other
businesses - (8) (24) (32) (14)
Profit on disposal of property,
plant and equipment (5) - - (5) (1)
Impairment of land relating to
Blackpool airport (2015: impairment
of goodwill) - 3 - 3 4
Impairment of assets within Rail
Germany - - - - 7
Other non-cash items - - - - (1)
Operating cash flows before movements
in working capital (50) (49) - (99) (313)
(Increase)/decrease in operating
working capital (82) 34 - (48) 178
----------- -------------- ------------ ----- -----
Inventories and non-construction
work in progress 42 - - 42 27
Due from construction contract
customers (14) 9 - (5) 182
Trade and other receivables (121) (13) - (134) 74
Due to construction contract
customers 60 (19) - 41 126
Trade and other payables (53) (7) - (60) (236)
Provisions 4 64 - 68 5
-------------------------------------- ----------- -------------- ------------ ----- -----
Cash (used in)/generated from
operations (132) (15) - (147) (135)
-------------------------------------- ----------- -------------- ------------ ----- -----
(1) Before non-underlying items (Note 8).
2016 2015
19.2 Cash and cash equivalents GBPm GBPm
------------------------------------------------ ----- -----
Cash and deposits 605 562
Term deposits 157 84
Cash balances within infrastructure concessions 7 20
Bank overdrafts (1) (3)
------------------------------------------------ ----- -----
768 663
------------------------------------------------ ----- -----
19 Notes to the statement of cash flows continued
2016 2015
19.3 Analysis of net borrowings GBPm GBPm
----------------------------------------------------- ----- -----
Cash and cash equivalents, excluding overdrafts
and cash balances within infrastructure concessions 762 646
Bank overdrafts (1) (3)
US private placement (285) (236)
Liability component of convertible bonds (240) (233)
Loans under committed facilities (50) -
Other loans (12) (10)
Finance leases (1) (1)
173 163
----- -----
Non-recourse infrastructure concessions project
finance loans at amortised cost with final maturity
between 2019 and 2048 (240) (385)
Infrastructure concessions cash and cash equivalents 7 20
----- -----
(233) (365)
----------------------------------------------------- ----- -----
Net borrowings (60) (202)
----------------------------------------------------- ----- -----
Infrastructure
concessions
non-recourse
project
finance Other Total Total
19.4 Analysis of movement in net 2016 2016 2016 2015
(borrowings)/cash GBPm GBPm GBPm GBPm
------------------------------------- --------------- ------ ------ ------
Opening net borrowings (365) 163 (202) (226)
Currency translation differences (6) 30 24 (15)
Net (decrease)/increase in cash
and cash equivalents (13) 38 25 (83)
Accretion on convertible bonds - (7) (7) (6)
Proceeds from new loans (65) (52) (117) (79)
Repayments of loans 25 1 26 12
Disposal of non-recourse borrowings 191 - 191 177
Net decrease in cash within assets
held for sale - - - 18
------------------------------------- --------------- ------ ------ ------
Closing net (borrowings)/cash (233) 173 (60) (202)
------------------------------------- --------------- ------ ------ ------
19.5 Borrowings
During the year ended 31 December 2016, the significant
movements in borrowings were: an increase in new loans of GBP52m
(2015: GBPnil); an increase of GBP65m (2015: GBP79m) in
non-recourse loans funding the development of infrastructure
projects in subsidiaries; disposal of non-recourse borrowings in
streetlighting projects of GBP191m (2015: GBP177m on disposal of
Thanet OFTO HoldCo Ltd); and repayment of GBP25m (2015: GBP11m) of
non-recourse loans.
20 Acquisitions and disposals
20.1 Current and prior year acquisitions
On 30 September 2016, the Group acquired 100% of Omnicom
Engineering Ltd for a purchase price of GBP3m. The consideration
includes a deferred consideration element of GBP0.3m which is
subject to Omnicom securing key orders at an acceptable level of
margin. The acquisition resulted in goodwill of GBP2m. Refer to
Note 12. There were no material acquisitions in 2015.
Deferred consideration paid during 2016 in respect of
acquisitions completed in earlier years was GBP3m (2015: GBP3m).
This related to the Group's acquisition of Centex Construction in
2007.
20.2 Current year disposals
Direct
costs
incurred,
indemnity
provisions
created
Amount and
Net recycled fair Non-
Percentage Cash assets from value Underlying underlying
Disposal disposed consideration disposed reserves uplift gain gain/(loss)
Notes date Entity/business % GBPm GBPm GBPm GBPm GBPm GBPm
-------- ----------- ----------------- ---- ----------- -------------- --------- --------- ----------- ----------- ------------
Connect
15 April M1-A1 Holdings
20.2.1 2016 Ltd ^ 30% 15 (10)(&) - - 5 -
Living & Learning
20.2.2 5 May 2016 Unit Trust ^ 50% 19 (1) (8) (1) 9 -
BSF Schools:
Islington,
Southwark,
Blackburn with
Darwen & Bolton,
Oldham,
Hertfordshire,
1 July Ealing, Derby
20.2.3 2016 City ^ 80/90% 73 (27) (8) - 38 -
BBIP
1 July Infrastructure
20.2.4 2016 Fund (+) 17.8% 48 (48) 7 (1) - 6
1 July
20.2.5 2016 BBIP Advisor * 100% - (3) - - - (3)
7
September
20.2.6 2016 Humber Gateway ^ 40% 2 - - - 2 -
21
September Parts of Rail
20.2.7 2016 Germany * 100% 15 (14) 2 (1) - 2
21
November Balfour Beatty
20.2.8 2016 Sakti Indonesia ^ 49% (3) 3 - - - -
Streetlighting:
Sunderland,
South Tyneside,
15 Coventry,
December Cambridgeshire,
20.2.9 2016 Northamptonshire * 80% 33 (37) 15 - 11 -
202(x) (137) 8 (3) 65 5
* Subsidiary.
^ Joint venture.
(+) Associate.
(X) Total cash consideration received by the Group also includes
GBP9m of cash received in respect of Parsons Brinckerhoff (Note
8.2.1.1) and GBP2m of deferred cash consideration received in
respect of SSL (Note 8.1.4.7).
(&) Net assets disposed include amounts due to the joint
venture of GBP4m held by the Company.
20.2.1 On 15 April 2016, the Group disposed of a 30% interest in
Connect M1-A1 Holdings Ltd for a cash consideration of GBP15m. The
infrastructure concession disposal resulted in a net gain of GBP5m
being recognised within underlying operating profit. The Group
retains a 20% interest in Connect M1-A1 Holdings Ltd.
20.2.2 On 5 May 2016, the Group disposed of its 50% interest in
Living & Learning Holdings Custodians Pty Ltd (Living &
Learning Unit Trust) for a cash consideration of GBP19m. The
infrastructure concession disposal resulted in a net gain of GBP9m
being recognised within underlying operating profit, comprising: a
gain of GBP18m in respect of the investment in the joint venture,
an GBP8m loss in respect of revaluation reserves recycled to the
income statement and GBP1m costs of disposal incurred.
20 Acquisitions and disposals continued
20.2.3 On 1 July 2016, the Group disposed of its entire interest
in seven BSF (Building Schools for the Future) projects: Islington,
Southwark, Blackburn with Darwen & Bolton, Oldham,
Hertfordshire, Ealing and Derby City for a cash consideration of
GBP73m. On this date, the Group ceased to jointly control these BSF
projects by virtue of a put/call structure with a preferred bidder.
The disposal completed on 22 August 2016. The infrastructure
concession disposal resulted in a net gain of GBP38m being
recognised within underlying operating profit, comprising: a gain
of GBP46m in respect of the investments in the joint ventures and
an GBP8m loss in respect of revaluation reserves recycled to the
income statement.
20.2.4 On 1 July 2016, the Group disposed of its 17.8% interest
in the BBIP Infrastructure Fund for an initial cash consideration
of GBP48m. The disposal resulted in a net gain of GBP6m being
recognised within non-underlying operating profit, comprising: a
gain of GBPnil in respect of the investment in the associated
undertaking, a GBP7m gain in respect of revaluation reserves
recycled to the income statement and GBP1m costs of disposal
incurred.
20.2.5 On 1 July 2016, the Group disposed of its 100% interest
in the BBIP Advisor for a cash consideration of GBPnil. The
disposal resulted in a net loss of GBP3m being recognised within
non-underlying operating profit, comprising a loss of GBP3m in
respect of the investment in the subsidiary.
20.2.6 On 7 September 2016, the Group disposed of its right to a
40% interest in Humber Gateway OFTO Holdings Ltd. The
infrastructure concession disposal resulted in a net gain of GBP2m
being recognised within underlying operating profit comprising a
GBP2m fee received on disposing of the Group's interest. The Group
retains a 20% interest in Humber Gateway OFTO Holdings Ltd.
20.2.7 On 21 September 2016, as part of the ongoing process to
exit the Mainland European rail business, the Group disposed of
part of its Rail business in Germany to Tianjin Keyvia Electric Co
Ltd for a cash consideration of GBP15m. This sale resulted in a
GBP2m gain as a result of recycling of foreign currency reserves.
The related assets disposed were impaired by GBP11m in 2015 to
reflect the value of the agreed consideration which was recognised
within non-underlying items (refer to Note 8.1.4.8). The disposal
included cash disposed of GBP10m.
20.2.8 On 21 November 2016, the Group reached agreement to
dispose of its 49% interest in Balfour Beatty Sakti Indonesia to
its joint venture partner for a payment by the Group of GBP3m
reflecting the Group's share of the net liabilities of the joint
venture. This has been recognised as a disposal in the year as
completion of the sale is not subject to any substantive terms at
the year end. The amount due to the purchaser has been recognised
in amounts due on disposal within trade and other payables (refer
to Note 16).
20.2.9 On 16 December 2016, the Group disposed of 80% interests
in five streetlighting projects for a cash consideration of GBP33m.
This infrastructure concession disposal resulted in a net gain of
GBP11m being recognised within underlying operating profit,
comprising: a loss of GBP4m in respect of the investments in
subsidiaries and a GBP15m gain in respect of fair value reserves
recycled to the income statement. The Group retains 20% interests
in the infrastructure concession projects which are accounted for
as joint ventures under the equity method. The disposal included
cash disposed of GBP16m.
20 Acquisitions and disposals continued
20.2.10 In 2015, the Group finalised the cash consideration due
on the disposal of Parsons Brinckerhoff (PB) amounting to
additional consideration for the Group of GBP16m of which GBP7m was
recognised as a receivable at the date of disposal in the prior
period. In accordance with the stock purchase agreement, the Group
received cash of GBP20m relating to historical tax matters (GBP16m
of which was recognised as a current tax receivable in the prior
period) and the Group also released an indemnity provision relating
to an historical legal claim of GBP3m which was successfully
settled during the period. Offsetting this additional
non-underlying gain on disposal were separation costs incurred
during the period of GBP4m, of which GBP2m were paid during the
period, and the write-off of a deferred tax asset of GBP7m
resulting in an overall net gain of GBP5m. Transaction costs of
GBP9m, which were accrued in the prior period, were paid in the
year.
Subsequently in 2016, the Group reached a settlement with the
purchaser of PB in relation to outstanding tax matters and
indemnities. The Group received an additional GBP9m as a result of
this settlement. At the same time, provisions in relation to these
matters have been released, resulting in an overall gain to the
Group of GBP24m.
21 Contingent liabilities
The Company and certain subsidiary undertakings have, in the
normal course of business, given guarantees and entered into
counter-indemnities in respect of bonds relating to the Group's own
contracts and given guarantees in respect of their share of certain
contractual obligations of joint ventures and associates and
certain retirement benefit liabilities of the Balfour Beatty
Pension Fund and the Railways Pension Scheme. Guarantees are
treated as contingent liabilities until such time as it becomes
probable payment will be required under the terms of the
guarantee.
Provision has been made for the Directors' best estimate of
known legal claims, investigations and legal actions in progress.
The Group takes legal advice as to the likelihood of success of
claims and actions and no provision is made where the Directors
consider, based on that advice, that the action is unlikely to
succeed, or that the Group cannot make a sufficiently reliable
estimate of the potential obligation.
22 Related party transactions
The Group has contracted with, provided services to, and
received management fees from, certain joint ventures and
associates amounting to GBP344m (2015: GBP414m). These transactions
occurred in the normal course of business at market rates and
terms. In addition, the Group procured equipment and labour on
behalf of certain joint ventures and associates which were
recharged at cost with no mark-up. The amounts due from or to joint
ventures and associates at the reporting date are disclosed in
Notes 15 and 16 respectively.
During 2016, the Group also entered into the following
transactions with related parties which are not members of the
Group. The following companies were related parties in 2016 as they
are controlled or jointly controlled by a non-executive director of
Balfour Beatty plc.
Amounts owed
Sale of goods by related Amounts owed to related
& services Purchase of goods & services parties parties
2016 2016 2016 2016
GBPm GBPm GBPm GBPm
Urenco Ltd 62 - 5 -
Anglian Water Group Ltd 13 9 - -
75 9 5 -
All transactions with these related parties were conducted on
normal commercial terms, equivalent to those conducted with
external parties. The amounts outstanding are unsecured and will be
settled in cash. No guarantees have been given or received. No
expense has been recognised in the period for bad or doubtful debts
in respect of the amounts owed by related parties.
23 Principal risks and uncertainties
The nature of the principal risks and uncertainties which could
adversely impact the Group's profitability and ability to achieve
its strategic objectives include: external risks arising from the
effects of national or market trends and political change and the
complex and evolving legal and regulatory environments in which the
Group operates; strategic risks which may arise as the Group moves
into new territories and expands through acquisitions; organisation
and management risks including business conduct and people related
risks; and operational risks arising from bidding, project
execution, supply chain and health, safety and sustainability
matters.
The Directors do not consider that the nature of the principal
risks and uncertainties facing the Group has fundamentally changed
since the publication of the Annual Report and Accounts 2015.
The transformation of Balfour Beatty over the last two years
means that management has much greater visibility and control over
the business than was the case prior to Build to Last. This means
that the strengthened leadership team is much better positioned to
adjust and respond to changes in market conditions in the UK or
elsewhere.
Skills shortages within construction have been a challenge for
several years. The UK's decision to leave the European Union with
the potential for reduction in free movement of people is likely to
exacerbate the situation at a time when demand for skilled workers
will increase given the pipeline of projects due to start in the
coming years.
24 Events after the reporting date
On 26 January 2017, the Group reached agreement to sell its 49%
interests in Dutco Balfour Beatty LLC and BK Gulf LLC to its joint
venture partner for a total cash consideration of GBP11m. The sale
subsequently completed on 1 March 2017. The Group's investment in
these entities did not satisfy the criteria under IFRS 5
Non-current Assets Held for Sale and Discontinued Operations at the
balance sheet date and therefore continued to be presented within
the Group's underlying continuing operations. Following the
agreement to sell in January 2017, the criteria under IFRS 5 are
now satisfied and therefore the Group's share of results in these
entities will be presented as part of its discontinued operations
with comparatives restated accordingly in its 2017 financial
statements. The impact of the disposal will be presented as
non-underlying within discontinued operations.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR KELFFDXFZBBZ
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March 16, 2017 03:00 ET (07:00 GMT)
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