TIDMBBY
RNS Number : 6278H
Balfour Beatty PLC
14 March 2018
BALFOUR BEATTY PLC RESULTS FOR THE FULL-YEARED 31 DECEMBER
2017
14 March 2018
Strong results demonstrate delivery of Build to Last
transformation
Highlights
-- Underlying profit from operations more than doubled to GBP196m (2016: GBP69m)
-- All earnings-based businesses materially improved profit from operations
-- Average net cash GBP42m (2016: GBP46m net debt); year end net
cash GBP335m (2016: GBP173m)
-- M25 partial sales in line with strategy to maximise value from Investments portfolio
-- Directors' valuation of Investment portfolio unchanged at GBP1.2bn
-- Rebased, higher quality order book of GBP11.4bn, in line with half year
-- Recommended final dividend of 2.4 pence per share; full year
3.6 pence per share (2016: full year 2.7 pence)
-- Balfour Beatty remains on track for industry-standard margins in second half of 2018
(GBP million unless 2017 2016(4)
otherwise specified)
--------------------------- -------------------------- --------------------------
Underlying(3) Statutory Underlying(3) Statutory
--------------------------- -------------- ---------- -------------- ----------
Revenue(1,2) 8,234 6,916 8,215 6,923
Profit from operations(2)
(PFO) 196 148 69 17
Pre-tax profit(2) 165 117 62 10
Post-tax profit 143 168 48 24
Basic earnings per
share(6) 20.9p 24.7p 7.2p 3.5p
Dividends per share 3.6p 2.7p
--------------------------- -------------- ---------- -------------- ----------
2017 2016(4)
---------- ----------
Order book(1,2,3) GBP11.4bn GBP12.4bn
Directors' valuation of Investments
portfolio(5) 1,244 1,220
Net cash - recourse 335 173
Net borrowings - non-recourse(7) (305) (233)
------------------------------------------- ---------- -------------- ----------
Leo Quinn, Group Chief Executive, commented, "These results
clearly demonstrate that our Build to Last programme is
transforming Balfour Beatty. The Group has been repositioned to
drive sustainable growth in profits, underpinned by a strong
balance sheet. It has the right culture and capabilities to
capitalise on the rising tide of infrastructure spend in our chosen
markets.
"As a result of Build to Last, and the governance and controls
now in place, we remain on track to achieve industry-standard
margins in the second half of 2018. In the medium term, we are
building a Group capable of delivering market-leading
performance."
Notes:
(1) underlying revenue and order book includes share of joint
ventures and associates
(2) from continuing operations
(3) before non-underlying items (Note 8)
(4) re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations
(5) 2017 valuation includes GBP62 million relating to the 7.5%
second partial disposal of the Connect Plus M25 asset, as the
disposal proceeds had not been received at year end. The proceeds
were subsequently received on 23 February 2018
(6) underlying basic earnings per share are from underlying
continuing operations
(7) non-recourse net borrowings are cash and debt that are
ringfenced within certain infrastructure concession project
companies.
A reconciliation of the Group's performance measures to its
statutory results is provided in the Measuring Our Performance
section.
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 the
Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED at 09:00
(UK time) on 14 March 2018. There will be a live webcast of this
presentation on: www.balfourbeatty.com/webcast
2017 FULL-YEAR RESULTS ANNOUNCEMENT
-- GROUP CHIEF EXECUTIVE'S REVIEW
-- BUILD TO LAST
-- RESULTS OVERVIEW AND OUTLOOK
-- DIVISIONAL OPERATING REVIEWS
-- OTHER FINANCIAL ITEMS
-- MEASURING OUR PERFORMANCE
GROUP CHIEF EXECUTIVE'S REVIEW
These strong results demonstrate the transformation being
delivered by the Build to Last programme. Today, Balfour Beatty is
well placed to drive sustainable profitable growth, underpinned by
a strong balance sheet. It has strength and depth in leadership, a
new, positive culture is being embedded and the business is well
positioned in each of its chosen markets.
The Group reported an underlying profit from operations (PFO) of
GBP196 million (2016: GBP69 million) driven by material
year-on-year improvements in all earnings-based businesses. Both
Support Services and US Construction reported PFO margins in the
range of industry-standard margins. UK Construction continues on
its positive trend, with a profit from operations of GBP16 million
(2016: GBP65 million loss).
The Group is on track to achieve industry-standard margins in
all of its earnings-based businesses in the second half of 2018 as
it continues to drive three key levers for improved financial
performance: finalising the remaining historical contracts through
to completion; reducing costs and raising productivity across its
operations; and executing on the improved quality of the order
book.
Cash remains the Group's focus and ultimately the most important
barometer of financial performance. During the year, the Group had
average net cash of GBP42 million (2016: GBP46 million net debt);
at year end, the Group had net cash of GBP335 million (2016: GBP173
million). The year end figure includes GBP103 million received from
the sale of a 12.5% stake in Connect Plus, the company which
operates the M25 London orbital motorway. The Directors' valuation
of the Investments portfolio has remained unchanged at GBP1.2
billion (2016: GBP1.2 billion), despite the Connect Plus M25
partial disposal, as a result of the continuing strong market for
secondary
infrastructure assets and the recent favourable changes in US
tax regulations. The sale of a further 7.5% stake in the M25, for
GBP62 million, was agreed on 29 December 2017, although the cash
was not received until 2018.
Balfour Beatty's net cash position and the value of the
Investments portfolio underline the ongoing strength of the Group's
balance sheet and place it in a strong position to further pay down
gross borrowings in 2018.
The order book decreased by 8% to GBP11.4 billion (2016: GBP12.4
billion), down 3% at CER compared to prior year, and is directly in
line with the order book at 30 June 2017. The reduction is a result
of the Group's stated policy of selective bidding at appropriate
terms for those projects best aligned with its capabilities. The
business increased bid margin thresholds and focused on projects
where Balfour Beatty's capabilities can deliver value, coupled with
a lower risk profile, so that the Group wins work at appropriate
terms and conditions.
Additionally, the order book does not yet include work won in
two-stage design and build contracts, such as work awarded to
Balfour Beatty's 50:50 joint venture (Balfour Beatty VINCI) for two
major civils packages, Lots N1 and N2, for the UK's new high speed
railway (HS2) valued at GBP2.5 billion. This type of work is
characteristic of the strong pipeline of infrastructure projects in
the Group's chosen markets and aligns with its balanced attitude to
risk and reward.
Consistent with the strategy to simplify the Group and focus on
markets and geographies where it has a competitive advantage,
Balfour Beatty exited the Middle East with the sale of its entire
interests in Dutco Balfour Beatty and BK Gulf for GBP11 million.
Both businesses were sold without future liabilities to the joint
venture partner. Additionally, Heery International, a full-service
US engineering and programme management, architecture and interior
design firm, was sold for US$57 million, eliminating potential
conflicts of interest with Balfour Beatty's US Construction
business.
Since the start of 2015, Balfour Beatty has also exited
Indonesia and Australia. In Canada, following the imminent
completion of the BC Children's and BC Women's hospitals in
Vancouver, it now only holds Investments assets.
With these moves, the Group is now able to maximise its
strengths in its chosen markets in the UK & Ireland, US and Far
East.
Balfour Beatty is increasingly building its business model on a
foundation of deep capability underpinned by risk reduction. This
means focusing on specific markets with inherent growth, where
Balfour Beatty has the right expertise to command market leading
margins, while ensuring it deploys the governance and transparency
to price contractual risk appropriately and manage project
execution closely.
BUILD TO LAST
The transformation of the Group continues to be defined by
progress against its Build to Last goals of Lean, Expert, Trusted
and Safe, measured by cash flow and profit from operations,
employee engagement, customer satisfaction and Zero Harm,
respectively.
In Lean, the governance and processes introduced during Phase
One of Build to Last have driven improved performance in all
business segments and put Balfour Beatty on track to achieve
industry-standard margins in the second half of 2018.
The Group continues to re-engineer processes to drive
efficiencies, reducing cost whilst maintaining or improving
effectiveness. As a result, costs were reduced by a further GBP30
million in 2017, in addition to the GBP123 million of annualised
cost savings delivered by Phase One of Build to Last.
Balfour Beatty's UK operations continued to standardise systems
with further upgrades to the Oracle R12 platform, including the
introduction of an electronic payment platform for suppliers. In
January 2018, the US businesses migrated onto a single JD Edwards
platform. The successful completion of these moves and the
investment made into these systems in the Group's two principal
geographies over the last three years will be a significant driver
of future value, as benefits continue to flow in terms of reduced
cost, raising productivity and improved transparency and
assurance.
Balfour Beatty's customers buy the Group's capabilities through
its expert people to deliver their projects. Therefore a priority
is to recruit, train and retain the highest calibre of workforce. A
growing pipeline of major infrastructure projects, particularly in
the UK and US markets, will see increasing competition for skilled
workers. The Group's success in winning work on iconic and
challenging engineering projects, such as HS2 and Hinkley Point C
in the UK and Dallas' Southern Gateway and the Los Angeles World
Airports' Automated People Mover in the US, demonstrates the
significant opportunities and unique potential for career
development at Balfour Beatty.
The Group metric for Expert is employee satisfaction. In 2017
the Group engagement index score was 60% (2016: 58%) in a period of
continuing change and challenge.
Bench strength in leadership is essential to driving the
business forward on a sustainable basis and to motivating
high-quality employees. Since the beginning of 2018 there have been
further upgrades in this area with the promotion of three
leaders.
-- Balfour Beatty continues to evolve its US organisation
building on the standardisation and leaning out already delivered.
At the year end the decision was taken to promote two internal
candidates, to lead the Buildings and Civils businesses
respectively. These appointments will leverage the Group's market
positions while maintaining the new contracting disciplines.
-- In the UK, given the similar characteristics and requirements
of key customers in the Rail, Power transmission and distribution
and Gas and water markets, the businesses serving these markets
have been brought together under an experienced leader, to drive
back office standardisation while maintaining a strong market,
operational and safety focus.
In looking always to add to its depth of capability, Balfour
Beatty was recently pleased to recruit over 150 valuable staff
members following the Carillion liquidation. These people had
worked alongside Balfour Beatty staff on the Aberdeen Western
Peripheral Route (AWPR), A14 or Manchester Smart Motorway joint
ventures. Their significant experience will bolster Balfour
Beatty's long-term capacity at a time of growing market demand.
The Group has developed competency frameworks for key
operational job families in the UK such as Project Management,
Engineering and Commercial. This enables employees' experience and
competencies to be matched to contract risk and complexity,
providing them with a clear career path and targeted development,
whilst identifying recruitment priorities. These assessments now
cover essentially all of the Project Management and Commercial
workforce.
Balfour Beatty continues its sponsorship of The 5% Club, which
encourages employers to provide 'earn and learn' training
opportunities to address the UK's skills gap and widen economic
prosperity. During 2017 Balfour Beatty recruited 124 apprentices,
93 graduates and 35 trainees. The percentage of the UK workforce in
'earn and learn' positions at year end stood at 5.3%. Membership of
The 5% Club now includes key clients and supply chain partners of
Balfour Beatty all working to build the future capability to
support the growing infrastructure market.
Trusted is Balfour Beatty doing "what it says it will do" and is
measured by customer satisfaction.
During the year, 3,375 customer satisfaction reviews were
carried out (2016: 2,107), primarily in the UK. The Group customer
satisfaction average increased to 94% (2016: 91%).
The governance and controls introduced under Build to Last,
including the Gated Lifecycle, the Digital Briefcase and Project on
a Page, create a disciplined, business-like contracting framework.
This provides management with a clear, consistent line of sight on
all stages of work which is being bid and delivered, together with
key tools for managing commercial risk and project execution.
The Gated Lifecycle, introduced in 2015, takes a project from
the initial enquiry through to completion. The process reduces the
risk of pursuing inappropriate opportunities and underbidding or
accepting inappropriate levels of risk, including in respect of the
cash profile of projects. As the open debate around risk and reward
created by the Gated Lifecycle becomes a perceived enabler to
future success, so the process becomes an inherent driver of the
Group's culture.
All new UK sales opportunities and projects are now using the
Digital Briefcase, a secure web-based platform which digitises
governance and document control through all stages of the Gated
Lifecycle. Selected active projects were also installed
retrospectively. The Digital Briefcase helps to ensure that correct
procedure is being followed and that documentation is more easily
accessible in the event of claims or other issues. In excess of
1,000 current or potential projects are now active on the
system.
Over the last three years, the Group has derived more
value-added business information through the use of business
analytics. Project on a Page allows projects to be monitored in a
timely and consistent manner, enabling early intervention where
signs of adverse trends are detected, thus reducing risk to the
business and strengthening customer relationships.
The governance and controls now in place enable Balfour Beatty
to: selectively bid business to match capability; assess and price
risk appropriately; track (and thus intervene on) execution all the
way through the lifecycle of a project, including the defect
period; and ultimately drive higher margins for the Construction
Services and Support Services businesses.
In May, Balfour Beatty was the first company in the world to
complete the ISO 20400 assessment, the 2017 international standard
for sustainable procurement. The standard ensures that key issues
are considered in developing: a sustainable procurement policy and
strategy; guidance in creating organisational conditions necessary
to procure sustainably; guidance in setting priorities in
sustainable procurement; and suggestions on how to improve the
procurement process as a whole. Clients, particularly in the UK
public sector, are increasingly taking into account social value
and other environmental factors when making procurement
decisions.
In Safe, Balfour Beatty intends that everyone who comes into
contact with its work activities should not be harmed.
Safety is actively managed and monitored through strong
governance, a combination of leading and lagging performance
indicators, training and competence and visible leadership working
to establish a Zero Harm culture throughout the business.
Each week senior management report and consider any accident,
ill health 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. Notwithstanding
this, it is with deep regret that three people died during the year
whilst working on the Group's construction projects.
In 2017, the indicators continued to trend positively, with the
Group Lost Time Incident Rate (excluding international joint
ventures) falling for the third successive year to 0.17 (2016:
0.22).
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 aligned to measures used
internally to assess business performance in the Group's budgeting
process and when determining compensation. An explanation of the
Group's financial performance measures and appropriate
reconciliations to its statutory measures are 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.
The Group has presented its 49% interests in its Middle East
joint ventures as discontinued operations in 2017, with
comparatives restated accordingly.
As previously advised, Rail construction is now included within
UK Construction, with comparatives restated accordingly.
Group financial summary
In 2017, Balfour Beatty delivered a strong financial
performance. The Group's income statement, cash flow and balance
sheet all strengthened as the progress made with Phase Two of Build
to Last translated into improved financial metrics.
In the Group income statement, revenue was flat, gross profit
increased and overheads reduced - resulting in increased
profitability. Underlying profit from operations margins increased
in all business segments as the Group remains on track to deliver
industry-standard margins in the second half of 2018.
Year end net cash stood at GBP335 million and importantly
average net cash for the year was GBP42 million.
The order book at GBP11.4 billion decreased by 8%, down 3% at
constant exchange rates (CER), compared to prior year (2016:
GBP12.4 billion). The year end GBP11.4 billion is directly in line
with the order book at 30 June 2017.
Underlying revenue was flat at GBP8,234 million (2016: GBP8,215
million) as the Group continued with its more disciplined and
selective approach to bidding. Underlying revenue at CER fell by
3%. Statutory revenue, which excludes joint ventures and
associates, was GBP6,916 million (2016: GBP6,923 million).
Construction Services underlying revenue was up 2% (down 2% at
CER) at GBP6,649 million (2016: GBP6,537 million) as growth in the
US offset an expected decline in the UK. Support Services
underlying revenue declined 4% at GBP1,061 million (2016: GBP1,103
million) as an increase in utilities was more than offset by lower
transportation revenues.
Underlying profit from operations increased to GBP196 million
(2016: GBP69 million), with Construction Services, Support Services
and Infrastructure Investments all reporting improved profitability
in the period. Underlying profit from operations increased at all
geographical business segments within Construction Services.
Statutory profit from operations increased to GBP148 million (2016:
GBP17 million), primarily driven by the increase in underlying
profits.
Underlying profit 2017 2016(4)
from operations(2,3) GBPm GBPm
============================== ========= ==========
US Construction 41 33
UK Construction 16 (65)
Gammon 15 11
============================== ========= ==========
Construction Services 72 (21)
Support Services 41 34
Infrastructure Investments 116 89
Corporate activities (33) (33)
============================== ========= ==========
Total 196 69
============================== ========= ==========
(2) from continuing operations
(3) before non-underlying items (Note 8)
(4) re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations
Construction Services improved from a loss of GBP21 million in
2016, to a profit from operations of GBP72 million in 2017 as UK
Construction reported a profit of GBP16 million in the period
(2016: GBP65 million loss). Support Services also improved, with
underlying profit from operations of GBP41 million (2016: GBP34
million). Infrastructure Investments increased from prior year, as
partial sell-downs of the Connect Plus M25 asset generated an GBP86
million profit on disposal of assets from the portfolio (2016:
GBP65 million).
Net finance costs increased to GBP31 million (2016: GBP7
million). The prior year comparison benefited from a GBP19 million
gain on foreign currency deposits, with the corresponding gain in
2017 at GBP1 million. Underlying pre-tax profit from continuing
operations increased to GBP165 million (2016: GBP62 million). The
taxation charge on underlying profits increased to GBP23 million
(2016: GBP12 million).
Underlying profit after tax including discontinued operations
for the year at GBP143 million (2016: GBP48 million) 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 GBP168 million (2016: GBP24 million), as
a result of the net effect of non-underlying 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 of GBP20 million were a net credit to the
profit for the year from continuing operations (2016: GBP48 million
net charge).
During the year significant actuarial gains in the Group's main
pension fund, the Balfour Beatty Pension Fund (BBPF), led to the
recognition of a deferred tax liability which was accounted for
through reserves in line with the treatment of the pension
movement. This, in turn, led to the recognition of additional UK
deferred tax assets of GBP34 million which resulted in a tax credit
being recognised in the income statement as a non-underlying
item.
The US Government has reduced the Federal corporate income tax
rate from 35% to 21% with effect from 1 January 2018. The net
impact of this change in 2017 was a non-underlying GBP32 million
tax credit in the income statement.
On 15 January 2018, Carillion plc filed for compulsory
liquidation. Carillion was one of the Group's joint operations
partners in the Aberdeen Western Peripheral Route (AWPR) project on
a joint and several basis. As a result of Carillion's liquidation,
the Group and its remaining joint operations partner on the
project, Galliford Try plc, are jointly liable to deliver
Carillion's remaining obligations on this contract in addition to
each partner's existing 33% share. As a result, the Group has
recognised a one-off non-underlying loss provision of GBP44 million
in 2017 which reflects the Group's additional loss on the contract
as a result of Carillion's liquidation. The contract is expected to
complete in the summer of 2018.
Other items included: GBP12 million of restructuring costs
incurred relating to the Group's Build to Last transformation
programme; a GBP9 million charge relating to the amortisation of
acquired intangible assets; and a GBP18 million gain on the
disposal of Heery International Inc.
Earnings per share
Underlying basic earnings per share from continuing operations
were 20.9 pence (2016: 7.2 pence), which, along with a
non-underlying earnings per share from continuing operations of 2.8
pence (2016: 7.0 pence loss), gave a total basic earnings per share
for continuing operations of 23.7 pence (2016: 0.2 pence).
Discontinued operations contributed 0.1 pence (2016: 0.2 pence
loss) to the total underlying basic earnings of 21.0 pence per
share (2016: 7.0 pence). Total basic earnings per share were 24.7
pence (2016: 3.5 pence).
Cash flow performance
The total cash movement in the period resulted in a GBP162
million increase (2016: GBP10 million) to the Group's net cash
position to GBP335 million (2016: GBP173 million) driven by
operating cash flows and proceeds from investment disposals, partly
offset by new investments in infrastructure assets and pension
deficit payments.
The GBP162 million improvement is primarily as a result of the
continuing recovery in profitability of the Group's earnings-based
businesses, particularly UK Construction.
Operating cash flows, before movements in working capital and
pension deficit payments, improved to an inflow of GBP39 million
(2016: GBP58 million outflow). Working capital had an inflow of
GBP27 million (2016: GBP48 million outflow) and pension deficit
payments were an outflow of GBP25 million (2016: GBP41
million).
Cash flow performance 2017 2016
GBPm GBPm
================================== ======== ========
Operating cash flows 39 (58)
Working capital inflow/(outflow) 27 (48)
Pension deficit payments (25) (41)
================================== ======== ========
Cash generated from/(used in)
operations 41 (147)
Infrastructure Investments:
- disposal proceeds 105 189
- new investments (35) (65)
Other 51 33
================================== ======== ========
Cash inflow 162 10
Opening net cash(*) 173 163
Closing net cash(*) 335 173
================================== ======== ========
(*) excluding infrastructure concessions (non-recourse) net
debt
Working capital
The Group has maintained the strong working capital position
from December 2016, with an inflow of GBP27 million in 2017 (2016:
GBP48 million outflow).
Trade and other payables decreased during 2017, creating a
working capital outflow of GBP92 million (2016: GBP60 million
outflow), offset by a working capital inflow of GBP95 million
(2016: GBP134 million outflow) from trade and other receivables.
The offsetting reduction in both balances is predominantly due to
contract timings and associated customer and supplier payments
compared to the prior year and the ongoing completion of historical
non-underlying contracts.
Including the impact of foreign exchange and non-operating
items, negative (i.e. favourable) working capital decreased to
GBP888 million at 31 December 2017 (2016: GBP894 million).
Working capital flows 2017 2016
GBPm GBPm
------------------------------------- -------- --------
Inventories and WIP (12) 42
Construction contract
balances 7 36
Trade and other payables (92) (60)
Trade and other receivables 95 (134)
Provisions 29 68
------------------------------------- -------- --------
Working capital inflow/(outflow)(^) 27 (48)
------------------------------------- -------- --------
(^) Excludes impact of foreign exchange and disposals
Net cash/borrowings
The Group's net cash position at 31 December 2017, excluding
non-recourse net borrowings, was GBP335 million (2016: GBP173
million). Non-recourse net borrowings, held in wholly-owned
infrastructure concessions, increased to GBP305 million (2016:
GBP233 million). The balance sheet also includes GBP103 million
(2016: GBP100 million) for the liability component of the
preference shares. Statutory net debt at 31 December 2017 was GBP73
million (2016: GBP160 million).
Pensions
Following the formal triennial funding valuation of the Balfour
Beatty Pension Fund (BBPF) at 31 March 2016, the Company and the
trustees agreed the key commercial principles of a plan for the
BBPF to reach self-sufficiency during 2027, some three years
earlier than previously planned. Under this plan Balfour Beatty
will make cash contributions totalling GBP140 million over the next
six years. There is an agreed dividend sharing mechanism such that
if the dividend cover ratio falls below 2x from 2018 onwards,
funding to the BBPF will be accelerated.
Following the formal triennial funding valuation of the Railways
Pension Scheme as at 31 December 2016, the Group agreed to make
ongoing deficit contributions of GBP6 million per annum which
should reduce the deficit to zero by 2027.
The Group's balance sheet includes net retirement benefit assets
of GBP32 million (2016: GBP231 million liabilities) representing
net surpluses in the Group's pension schemes, as measured on an IAS
19 basis. This is primarily due to net actuarial gains of GBP242
million in the year within the Statement of Other Comprehensive
Income, including a gain of GBP123 million from a change in
discount rate methodology.
Impact of IFRS 15
The Directors have completed their assessment of the impact of
IFRS 15 Revenue from Contracts with Customers. The Group will adopt
the new standard from 1 January 2018 with the opening equity
position as at 1 January 2018 restated by a credit of GBP3 million
to reflect the impact of transitioning to the new accounting
standard. This adjustment primarily reflects the impact of
unbundling a handful of contracts according to the Group's
assessment of its performance obligation to be delivered to the
customer. Using the five-step model required by the new standard,
the impact of the GBP3 million credit to equity represents the
acceleration of revenue on transition to IFRS 15 which was
previously not recognised by the Group under the previous revenue
standards. Early adoption of IFRS 15 would have resulted in an
immaterial impact on the Group's income statement for the year
ended 31 December 2017.
Outlook
The Build to Last transformation programme is designed to
deliver superior returns over the medium term for all stakeholders,
from a Group which is Lean, Expert, Trusted and Safe. As a result
of the successful self-help actions taken in Phase One, Balfour
Beatty now has a strong foundation on which to deliver sustainable,
profitable growth.
In Phase Two (24-month period to the end of 2018), the Group
expects each of its Construction Services and Support Services
businesses to continue their positive trajectory to achieve
industry-standard margins. Specifically, for these earnings-based
businesses, the underlying profit from operations margin targets
are as follows:
Target
UK Construction 2%-3%
US Construction 1%-2%
Support Services 3%-5%
The Group is on track to achieve industry-standard margins in
the second half of 2018 as it continues to drive three key levers
for improved financial performance: finalising the remaining
historical contracts through to completion; reducing costs and
raising productivity across its operations; and executing on the
improved quality of the order book.
For Infrastructure Investments, during Phase Two of Build to
Last, the Group will continue to sell assets, as appropriate, to
maximise value to shareholders and invest in new opportunities.
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
Following the 1.2 pence per share dividend declared at the half
year, the Board is recommending a final dividend of 2.4 pence per
share, giving a total recommended dividend for the year of 3.6
pence per share (2016: 2.7 pence). The Board recognises the
importance of dividends to shareholders and anticipates a
progressive dividend policy going forward.
DIVISIONAL OPERATING REVIEWS
CONSTRUCTION SERVICES
Financial review
Construction Services continued to make significant progress
during the course of the year. The segment improved from an
underlying loss of GBP21 million in 2016, to an underlying profit
from operations of GBP72 million in 2017 primarily due to the
improvements at UK Construction.
Construction 2017 2016(4)
Services
---------------- --------- ----------------------------- --------- -----------------------------
Rev(1,2) PFO(2) PFO(2) Order Rev(1,2) PFO(2) PFO(2) Order
book(1,2) book(1,2)
---------------- --------- ------- ------- ----------- --------- ------- ------- -----------
GBPm GBPm % GBPbn GBPm GBPm % GBPbn
---------------- --------- ------- ------- ----------- --------- ------- ------- -----------
US 3,634 41 1.1 4.3 3,427 33 1.0 5.5
UK 1,998 16 0.8 2.7 2,143 (65) (3.0) 2.3
Gammon 1,017 15 1.5 1.3 967 11 1.1 1.5
Underlying(3) 6,649 72 1.1 8.3 6,537 (21) (0.3) 9.3
Non-underlying 30 (36) - 153 (34) -
---------------- --------- ------- ------- ----------- --------- ------- ------- -----------
Total 6,679 36 0.5 8.3 6,690 (55) (0.8) 9.3
---------------- --------- ------- ------- ----------- --------- ------- ------- -----------
(1) underlying revenue and order book includes share of joint
ventures and associates
(2) from continuing operations
(3) before non-underlying items (Note 8)
(4) re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations
A reconciliation of the Group's performance measures to its
statutory results is provided in the Measuring Our Performance
section.
Underlying revenue increased by 2% to GBP6,649 million (2016:
GBP6,537 million), a 2% decrease at CER. As expected, underlying
revenues in the UK fell by 7%, as improved bidding disciplines and
selectivity adopted under Build to Last resulted in lower levels of
activity in previous problem areas. This was more than offset by an
underlying revenue increase of 6% in the US (1% increase at CER)
and a 5% increase at Gammon (1% increase at CER).
The turnaround of underlying profit from operations at GBP72
million (2016: GBP21 million loss) is primarily a result of the UK
which returned to underlying profit of GBP16 million (2016: GBP65
million loss). Underlying profit in the US at GBP41 million and
Gammon at GBP15 million both improved year on year.
The order book decreased by 11% (5% at CER) due to declines in
the US and Gammon. The 22% (14% at CER) decrease in the US order
book, although greater than anticipated, is consistent with the
Group's stated policy of selective bidding for those projects best
aligned with its capabilities. Gammon's order book decreased by 13%
(7% at CER) as the timing of orders is more variable. The overall
reduction was, in part, offset by the UK order book increasing by
17% to GBP2.7 billion, within the more disciplined and selective
approach to bidding. The GBP2.5 billion (Balfour Beatty 50% joint
venture) HS2 contracts won in July 2017 will not be included in the
order book until the conclusion of the Early Contractor Involvement
(ECI) at the end of 2018 or in early 2019.
The Group is continuing to manage problem contracts through to
completion. Each requires a high level of leadership involvement to
ensure the best achievable outcome and a positive effect on
customer relations. In most cases, the positions taken are proving
adequate, reflecting, as expected, a mix of projects successfully
closed out ahead of expectation, as well as others where the
outcome, although disappointing, is being managed to its best
conclusion. A very limited number of contracts have disappointed
outside of this expectation. The largest of these is Aberdeen
Western Peripheral Route (AWPR) which has experienced ongoing
schedule and cost issues. These contracts have impacted the
underlying results of Construction Services.
As these challenges reduce, new contracts are coming on stream
which were bid, won and are being executed and monitored within the
Group's framework of contracting disciplines. This means that the
strong foundation created in the first 36 months of Build to Last
will be reflected increasingly in improved project delivery. As
this feeds through the business, management time can increasingly
be refocused onto the many opportunities in the pipeline which play
to Balfour Beatty's capabilities.
In the construction portfolio there are a small number of
long-term and complex projects where the Group has incorporated
judgements over contractual outcomes. The range of potential
outcomes as a result of uncertain future events could result in a
materially positive or negative swing to profitability and cash
flow. These contracts are primarily within the major infrastructure
business units in the UK, US and Gammon.
Operational review
UK
Underlying revenue in the UK fell by 7% to GBP1,998 million
(2016: GBP2,143 million), but profit from operations remained
positive following the return to underlying profit during the
second half of 2016. The underlying profit from operations at GBP16
million equates to a PFO margin of 0.8%, with the business
targeting an industry-standard margin of 2%-3% in the second half
of 2018. The UK order book increased by 17% to GBP2.7 billion as
the business won a number of material projects including Hinkley
Point C and MECD (the University of Manchester's engineering campus
development).
The UK Construction business is organised into three business
units consisting of:
-- Major Projects: focused on complex projects in key market
sectors such as transportation, heavy infrastructure and
energy;
-- Regional: private and public, civil engineering, ground
engineering, mechanical and electrical engineering, and building,
providing customers with locally delivered flexible and fully
integrated civil and building services; and
-- Rail: civil engineering, track, power and electrification projects.
UK Construction is continuing to manage historical problem
contracts through to completion. At the start of 2015, 89
historical contracts were identified that had a material negative
impact on profitability and cash. As at the end of December 2017
93% of these projects were at practical completion (90% at end
December 2016) with over 80% at financial completion (70% at end
December 2016).
The Group is working constructively with industry bodies and the
UK Government to identify and manage any 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.
During the year, Balfour Beatty continued to focus on alignment
of the Group's world-leading expertise to its key customers'
requirements and providing them with a single primary point of
contact accountable for the work which is delivered for them,
across the organisation. In July, Balfour Beatty created an
engineering consultancy collaboration in the UK with Atkins (now
SNC-Lavalin), Mott McDonald and WSP. This partnership will focus
Balfour Beatty's procurement of design consultants for its projects
towards Atkins, Mott MacDonald and WSP with standard terms and
conditions. A community of practice will bring designers and
engineers from the four companies together to find solutions in key
areas such as health and safety through design, value engineering
and the use of more cost-effective design resources.
The Major Projects business continues to pursue a number of
major infrastructure opportunities across core transportation and
energy markets. Over the next few years HS2, new nuclear power
stations (Hinkley, Wylfa) and airport expansion (Heathrow) will all
contribute to the UK Government's investment in infrastructure,
which is forecast to rise from 0.8% of GDP in 2015-16 to over 1% of
GDP by 2020-21. In addition, the highways market continues to
provide good growth opportunities following the UK Government's
proposed GBP35 billion funding for Highways England's first and
second Roads Investment Strategies.
In June 2017, the Major Projects business successfully completed
work on the M3 four-lane smart motorway between junction 4a for
Farnborough and junction 2 for the M25. The project added an extra
lane in both directions by converting the hard shoulder into a
traffic lane - increasing capacity and adding technology that will
make the road more resilient for users. In September 2017, work was
completed on the A21 upgrade project between Tonbridge and Pembury
which now provides drivers with a new dual carriageway.
During the year significant progress has been made on flagship
projects. The UK's biggest road construction project at present,
the A14 in Cambridgeshire, had successfully completed more than a
quarter of the project's main construction work as it marked its
first year of construction in November. Following the liquidation
of Carillion plc, Balfour Beatty has assumed Carillion's share of
this project with the revised three-way joint venture working well
together on the project. At the Norwich Northern Distributor Road
(NNDR) project, all bridge beams have now been installed along the
new 20-kilometre road.
At the Aberdeen Western Peripheral Route (AWPR) project Balfour
Beatty and Galliford Try continue to move ahead with the complex
58-kilometre project. As a result of the liquidation of previous
joint venture partner Carillion, Balfour Beatty has recognised a
one-off non-underlying loss provision of GBP44 million which
reflects the Group's additional loss on the contract. Completion is
now expected in the summer of 2018.
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. C510 is effectively complete
with the other two projects on schedule for the December 2018
opening of the Elizabeth Line.
At the Thames Tideway Tunnel work continues on the 6-kilometre
West section which runs from Acton to Wandsworth. The first tunnel
boring machines (TBMs) have been delivered in preparation for the
start of tunnelling later this year. The TBMs were transported
along the Thames, in line with Tideway's commitment to transport
over 90% of materials by river, thereby reducing the number of road
vehicle journeys needed.
During the year Major Projects won the tunnelling and marine
works package for Hinkley Point C nuclear power station. The four-
year package will include the construction of three marine tunnels
- both onshore and offshore - totalling over 9.5 kilometres in
length and 7 metres in diameter to form part of the vital cooling
system. This is the second major package Balfour Beatty will
deliver at Hinkley Point C, following its appointment in 2015 to
the power station's electrical works package in joint venture with
NG Bailey.
In July, Balfour Beatty's 50:50 joint venture with VINCI was
awarded two major civil engineering lots (Lots N1 and N2) for the
two northern stretches of HS2 Phase 1, closest to Birmingham.
Balfour Beatty VINCI will deliver Lot N1, valued at c.GBP1.32
billion, and Lot N2, valued at c.GBP1.15 billion, between the Long
Itchington Wood Green tunnel to the Delta Junction / Birmingham
Spur and from the Delta Junction to the West Coast mainline tie-in
respectively, in two-stage design and build contracts. The
contracts are included in awarded but not contracted (ABNC) as the
first stage, a 16-month Early Contract Involvement (ECI) period,
commenced on 28 July 2017.
Also included in ABNC, the highways business has been selected
to deliver two Smart Motorway packages to upgrade sections of the
M6 (J2 - J4) and M4 (J3 - J12). Additionally, a contract from
Highways England for the construction of a proposed lorry area near
the M20 has been awarded and is currently under consultation. In
February 2018, the M6 (J2 - J4) contract was formally awarded to
Balfour Beatty.
The Regional business comprises:
-- Regional Construction: four regions (Scotland & Ireland,
North & Midlands, South and London) providing public and
private customers with locally delivered, flexible and fully
integrated civil and building services;
-- Balfour Beatty Ground Engineering: specialist geotechnical
contractor providing innovative piling and ground improvement
solutions across all sectors; and
-- Balfour Beatty Kilpatrick: heavy mechanical and electrical
(M&E) installations and building services.
The Regional business is focused on opportunities across five
sectors - aviation, buildings, civils, defence and energy.
Within Regional, in line with the Group's strategy, the number
of live projects has now fallen from over 400 at December 2015 to
around 225 by December 2017. The 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. There has also been a shift
towards a lower risk contract portfolio, with a reduction in the
number of fixed price contracts offset by an increase in target
cost contracts and framework agreements. Both target cost contracts
and framework agreements require early contractor involvement (ECI)
with the customer to ensure greater clarity around scope, schedule
and cost which, in combination, reduces delivery risk for all
parties.
In 2017, the Regional business successfully completed the
Anchorsholme flood prevention scheme in Blackpool to reduce flood
risk to around 5,000 properties. The new defences will help protect
Blackpool's tourism and recreational income for the next 100 years,
in addition to safeguarding Blackpool's iconic seafront tramway,
vital infrastructure and a major pumping station. Other projects
completed during the year included: Foundry Courtyard, a GBP32
million student accommodation complex in Glasgow, which completed
in the summer ahead of the start of the academic year; the Clyde
and Pen y Cymoedd windfarm projects in Scotland and Wales,
respectively; the Barons Quay town centre retail and leisure
development in Northwich, Cheshire; Gatwick level 10, which
involved improvements to check-in and bag-drop facilities,
utilising newer technology, in a better layout, to provide
efficiency gains and reduced queues; Lewisham and Southwark
College, comprising an extension to the college campus in central
London; and Project Zeppelin, the construction of a cryogenic
storage tank, forming part of a new ethane import terminal facility
on Teesside.
Work commenced on the GBP150 million Madison Tower, a 53-storey
residential building in Canary Wharf, London, with piling completed
in May. Other material ongoing projects include: upgrading baggage
screening and handling systems for Heathrow airport; Redwood luxury
retirement village for Audley; the renovation and new-build scheme
at No.1 Palace Street in St James', London; Forth Valley College,
Scotland; and DRET secondary school in London.
The Regional business had a number of successes in 2017. Notable
new contract awards in the period included:
-- GBP287 million contract for The University of Manchester to
construct the Manchester Engineering Campus Development (MECD);
-- GBP179 million contract for the University of Sussex, to
construct a new student accommodation project on campus which will
provide bedrooms for 2,117 students, together with new student
amenities and a Students' Union building;
-- GBP124 million Wokingham Public Road project, awarded through Scape;
-- GBP63 million contract for Network Rail for the redevelopment
of Glasgow Queen Street station; and
-- GBP53 million contract for a retirement village at Runneymede for Audley Villages.
Included in ABNC, at year end the Group had been selected as
preferred bidder for: the East Wick and Sweetwater residential
development project; the Vine Street student accommodation project,
London; and the Caernarfon bypass. The Regional business also
continues to secure a number of significant engineering 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 the Rail construction business, underlying revenues were
lower as track and overhead line equipment projects between Slough
and Maidenhead for Crossrail substantially completed. These
projects contributed to a profit improvement in this delivery
unit.
During the year, the Group was selected by Network Rail to
electrify a 40-mile train route as part of the Great Western
mainline upgrade. Balfour Beatty will be responsible for the
remainder of the electrification between Cardiff and Bristol
Parkway and will utilise the latest technology and innovations in
design, construction and rail plant to drive efficiencies and
improve safety.
In February 2017, Balfour Beatty published its Staying on Track
paper. This lays out the Group's view that new funding models are
essential to provide the UK's rail industry with continuity of
project flow in order to support growth in innovation and skills.
Further, in October, the Group published its Fast Track to Digital
Railway: Delivering the Vision paper. This sets out the Group's
views on the Digital Railway, a rail industry-wide programme
encompassing a range of digitally enabled interventions to improve
the passenger experience by unlocking much needed capacity in the
network and delivering a railway system fit for the future, which
will stimulate and strengthen the UK economy.
US
Underlying revenue in the US grew by 6% in the period (1%
increase at CER) to GBP3,634 million. The business reported an
underlying profit from operations for the year of GBP41 million
(2016: GBP33 million). The underlying PFO margin at 1.1% is at the
low end of the Group's Build to Last Phase Two target of 1%-2% for
US Construction. The trajectory is positive and market conditions
are considered favourable. The 22% (14% at CER) decrease in the US
order book, although greater than anticipated, is consistent with
the Group's stated policy of selective bidding for those projects
best aligned with its capabilities. In January 2018, the US
business was awarded, in joint venture, the US$1.95 billion Los
Angeles airport (LAX) automated people mover project.
Balfour Beatty continues to evolve its US organisation building
on the standardisation and leaning out already delivered. At the
year end the decision was taken to promote two internal candidates,
to lead the Buildings and Civils businesses respectively. These
appointments will leverage the Group's market positions while
maintaining the new contracting disciplines.
Even before the 2016 presidential election, 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 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 publicly 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$35 billion of education bonds
in California, over US$200 billion of multi-state transportation
bonds), and an increase in US public-private partnership
schemes.
Since 2014, over half of the 50 US states have increased state
gasoline tax. In 2017 alone, eight states passed legislation to
increase their respective state gasoline tax, which will raise
around US$5 billion in new funding for infrastructure.
Additionally, many counties in various states have raised their
sales tax from 0.5% to 1%, which will increase infrastructure
funding by over US$2 billion per year.
In the US approximately 85% of revenues are generated from the
general building market (Buildings), with the civil infrastructure
market (Civils) accounting for the remaining 15%.
The Buildings business remains focused on working with repeat
customers, in known geographies where it can deliver value. In
2017, the Group closed its Houston office and continued to withdraw
from bidding on most stick frame multi-family housing.
The Buildings business is focused on specific 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. The core markets remain as commercial
offices, education, hospitality, residential and healthcare.
In 2017, Buildings completed a number of notable projects
including: the redevelopment of Microsoft Buildings 30, 31 and 32
in Redmond; the 300 South Tryon 25-storey office tower in
Charlottesville; the Alta Midtown, a mid- and high-rise residential
facility in Atlanta; the 500 East Morehead office building in
Charlotte; and the JM Alexander Middle School in Huntersville,
North Carolina.
During the year significant progress has been made on flagship
projects. In California, Balfour Beatty has started construction on
a new US$38 million performing arts and recreation centre for Heart
of Los Angeles (HOLA) and completed its largest concrete pour,
involving 888 trucks, at a new US$276 million 42-storey residential
tower at 500 Folsom in San Francisco. In the North West, Balfour
Beatty is constructing Portland's newest high-rise which will reach
19 stories and includes a hotel and 175,000 square feet of office
space. In North Carolina, the US$101 million Hotel Bennett in
downtown Charlestown is due to open in 2018.
The Buildings business had a number of successes in 2017.
Notable new contract awards in the period included:
-- Matthews Southwest River Landing project, a US$260 million
contract to build the River Landing Shops and Residences in Miami.
The mixed-use project will offer over 2 million square feet of
retail and residences in Miami's Civic Centre, including two
residential buildings which will feature 475 rental apartments and
a five-storey shopping centre;
-- US$100 million contract for Cleburne Independent School
District to deliver a 500,000 square foot update and expansion of
Cleburne High School;
-- US$130 million contract named Portals V, a 4-storey
residential building with 292 apartments, 76 condominiums, and
12,400 square foot of amenity space in Washington DC; and
-- US$95 million contract named Paseo De La Riviera, a mixed-use
development that will include a hotel, residences and retail in
Coral Gables, Florida.
Included in ABNC, the business has been awarded: the US$260
million Harrison Medical Centre project in Seattle; a US$150
million contract for an Atlanta airport hotel; and a US$70 million
contract for Disney in Orlando.
The Civils business continues to create value, operating in the
largely regulated markets of rail, water and road. In 2017, Civils
completed two notable road projects - the Dallas Horseshoe and
Wilmington Bypass. The Dallas Horseshoe, which follows a
distinctive U-shaped path, was a design-build project upgrading 73
miles of roadway and 37 bridges to reduce congestion. The
completion of the I-140 transportation loop around Wilmington,
North Carolina, involved driving 184 36-inch concrete piles into
the Cape Fear River to complete the three-mile bridge and roadway
project.
Additionally during the year, significant progress has been made
on key contracts. At Caltrain, a US$697 million contract for the
electrification of the 52-mile rail corridor between San Francisco
and San Jose, the Group started to place the foundations for the
conversion of the line from diesel trains to electric trains. In
Denver, Balfour Beatty is currently adding 2.3 miles and three
stations to the light rail line as part of a design-build contract.
In California, the Group is currently on-site modernising the
Rinconada water treatment plant by replacing and upgrading ageing
facilities and overhauling the treatment process.
The Civils business had a number of successes in 2017. Notable
new contract awards in the period included:
-- US$1.08 billion (25% equal four-way joint venture between
Balfour Beatty, Flour Corporation, The Middlesex Corp. and Herzog
Contracting Corp.) Green Line Extension design and build contract
for the Massachusetts Bay Transportation Authority (MBTA) to design
and build the new 4.7-mile commuter rail extension, associated
infrastructure and seven new rail stations; and
-- US$625 million (45% Balfour Beatty, 55% Fluor Corporation
joint venture) contract to reconstruct and improve the Southern
Gateway, an 11-mile stretch of road in Dallas, Texas. This contract
followed the joint venture's successful delivery of the adjacent
Horseshoe project.
In January 2018, Balfour Beatty was awarded the US$1.95 billion
design, build, finance, operate and maintain contract for the
Automated People Mover at Los Angeles International Airport (LAX)
for Los Angeles World Airports (LAWA). This project will use
expertise from each of the Buildings, Civils and Investments
businesses. The design and build element of the contract has been
awarded to the LAX Integrated Express Solutions (LINXS) joint
venture comprising Balfour Beatty (30%), Fluor Corporation (30%),
Flatiron West (20%) and Dragados USA (20%). The design and build
works will include a 2.25-mile, above ground airport transport
system connecting the LAX central terminal area to the
to-be-constructed consolidated rental car facility as well as six
stations and a vehicle maintenance facility.
Gammon
At Gammon, the Group's 50:50 joint venture based in Hong Kong
and Singapore, both revenue and profit were up, but the order book
declined as the timing of orders is more variable. During the year,
two material contracts moved towards satisfactory conclusion. The
Midfield Terminal project reached an amicable settlement, without
the need for arbitration, and the West Kowloon Terminus North
project is now close to completion.
The Group's share of underlying revenue increased by 5% (1% at
CER) to GBP1,017 million. Underlying profit from operations
increased to GBP15 million (2016: GBP11 million). During the year,
the joint venture made a dividend distribution to Balfour Beatty of
GBP37 million (2016: GBPnil). The order book declined by 13% (7% at
CER) to GBP1.3 billion, as timing of orders is more variable around
a small number of large building and civils contracts. The order
book is spread across a number of public and private customers. In
Buildings the focus is on productivity, efficiency and expanding
the customer base on a selective basis. In Civils the strategy is
to lever competitive advantage with a key area of future work
likely to be from expansion of the airport in Hong Kong and other
significant infrastructure programmes such as the Central Kowloon
Route in Hong Kong and the Rail Circle Line in Singapore.
In 2017, the Buildings business completed the construction of:
33 Tong Yin Street (residential towers and retail areas); and the
conversion of the ex-government Murray building into a hotel.
During the year work continued on major Buildings projects
including: the redevelopment of Somerset House into a 48-storey
office building; the construction of the Lee Garden Three Project,
which will include 20 floors of office space atop a five-level
retail complex; and the construction of a 71,000 square metre data
centre for Global Switch in Hong Kong. Work has also continued in
2017 on a number of Civils projects in Hong Kong, including the
West Kowloon Terminus North for the express rail link to Shenzhen,
China, and the complex Tuen Mun-Chek Lap Kok (TMCLK) Viaduct
project, which includes the design and construction of a dual
two-lane sea viaduct.
Gammon had a number of successes in 2017. Notable new contract
awards in the period included:
-- HK$6.2 billion contract for the Highways Department of the
Government of the Hong Kong Special Administrative Region to
construct the Kai Tak West section of the Central Kowloon Route in
Hong Kong;
-- HK$3 billion residential scheme for Great Eagle involving the
development of eight medium-rise residential blocks overlooking Tai
Po's Tolo Harbour in Northern Hong Kong;
-- HK$2 billion contract to create Hong Kong's first year round,
all-weather water park at Tai Shue Wan for Ocean Park Corporation.
Covering an area of over 693,000 square feet, the Ocean Park Water
World project includes construction of the main building structure
and fit-out and installation of various indoor and outdoor
attractions;
-- S$230 million contract to construct a data centre for Global
Switch in Singapore. This contract follows the construction of a
data centre for Global Switch in Hong Kong; and
-- HK$1 billion contract to construct The Fullerton Ocean Park
Hotel near the Ocean Park water park at Tai Shue Wan, Hong
Kong.
In January 2018, Gammon was awarded a HK$1.5 billion contract
for the West Kowloon Cultural District Authority (WKCDA) in Hong
Kong to deliver the extended basement and infrastructure works
called the L1 Contract.
Since the start of 2015, Balfour Beatty has exited the Middle
East, Indonesia and Australia. In Canada, following the imminent
completion of the BC Children's and BC Women's hospitals in
Vancouver, it now only holds Investments assets.
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 segment reduced by 4% to GBP1,061
million (2016: GBP1,103 million), as an increase in utilities was
more than offset by lower transportation revenues. Underlying
profit from operations increased to GBP41 million (2016: GBP34
million), with the 3.9% (2016: 3.1%) underlying PFO margin in the
middle of the Build to Last Phase Two industry-standard margin
target of 3%-5%. The order book was stable at GBP3.1 billion (2016:
GBP3.1 billion) as growth in transportation was offset by an
expected decline in utilities.
Support Services 2017 2016
--------------------------- -------- --------
Order book(1) (GBPbn) 3.1 3.1
Revenue(1) (GBPm) 1,061 1,103
--------------------------- -------- --------
Profit from operations(3)
(GBPm) 41 34
Non-underlying items
(GBPm) (2) (12)
--------------------------- -------- --------
Statutory profit from
operations (GBPm) 39 22
--------------------------- -------- --------
Underlying PFO margin(3)
(%) 3.9% 3.1%
--------------------------- -------- --------
(1) underlying revenue and order book includes share of joint
ventures and associates
(3) 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.
Operational review
Underlying utilities revenue increased by 3% to GBP608 million
(2016: GBP590 million), driven by a 10% increase at gas and water
which is in the middle of the regulatory period. The utilities
order book fell 13% due primarily to the expected decline in gas
and water.
The power transmission and distribution business had a
disappointing 2017 as it underwent significant restructure and cost
removal. The business is eliminating 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. The actions taken will ensure that the
business is focused on the most profitable areas of its market.
In the period, power transmission and distribution successfully
completed the Bhlaraidh-Bennuien windfarm connections project (a
combined overhead line, cabling and substations contract) near Fort
Augustus in Scotland for SSE as well as the London Power Tunnels
project for National Grid.
The business has commenced work on the Eleclink project in
conjunction with the Rail business. The installation of the HVDC
interconnector will involve laying two 50-kilometre cables through
the Channel Tunnel and connecting them to converter stations in
Northern France and Kent. Balfour Beatty's work, valued at c.
EUR140 million, has drawn on its extensive experience in power
transmission and distribution, construction and rail to lead the
innovative design and installation of this project.
The power and transmission distribution business had a number of
successes in 2017. Notable new contract awards in the period
included:
-- GBP43 million contract for a major overhead line
refurbishment scheme for National Grid in South Wales;
-- installation of a new GBP20 million overhead line to connect
the Dorenell wind farm for SSE Networks using a new composite tower
design, in addition to the award of a 10-kilometre cabling scheme
for SSE; and
-- contract awarded by SSE Power Distribution for the initial
works of the design and refurbishment of five 132kV overhead lines
across Southern England. This refurbishment will replace parts of
the network that are coming to the end of their working life,
making it more robust and resilient and minimising the risk of
power cuts for customers in the area.
The power and transmission distribution business has a stable
underlying market with increased National Grid spend for new
nuclear offsetting a decline across the distribution market.
In gas and water, the revenue increase in 2017 was due to the UK
water regulatory cycle, as new contracts continue to mature under
AMP6 (2015-2020). Many water contracts are extended over multiple
AMP periods and the Group has already started to engage on the AMP7
planning cycle. The gas market is in the middle of the RIIO-GD1
period, with no changes likely before early 2021.
In the period, the business commenced utility work on Heat
Networks in Gateshead, as part of a Government funded initiative,
and continued to construct the new Mayflower water treatment
facility for South West Water. The Mayflower facility is under
construction at a site near Roborough, north of Plymouth, and will
replace the existing Crownhill facility, which dates from the 1950s
and has reached the end of its natural life.
The gas and water business expects a peak volume year in 2018,
as it represents the middle of the current AMP/RIIO cycles.
Underlying transportation revenues reduced by 12% to GBP453
million (2016: GBP513 million), due to expected volume declines
from rail and highways. Highways revenues declined due to the end
of a maintenance contract and lower capital spend on a number of
contracts. The transportation order book grew by 12%, due to
increased order intake in highways and from local authorities.
In highways, the business was awarded the following contract
extensions during the year:
-- GBP115 million, 17-month extension for Balfour Beatty Mott
MacDonald, a 70:30 joint venture, from Highways England to continue
its service delivery for Area 10 in the Northwest of England;
-- GBP80 million five-year Highways Services Partnership
contract extension by Southampton City Council following a history
of good performance and collaborative working with the local
authority. The extension builds on the current 10-year contract
which commenced in October 2010, extending it until the end of
September 2025; and
-- GBP36 million nine-year contract extension for the M1-A1 Link
Road (Lofthouse to Bramham) on behalf of Connect Roads, for
ultimate customer Highways England.
The underlying highways market is positive with a continued
Government focus on highways, with its proposed GBP35 billion
funding for Highways England's first and second Roads Investment
Strategies.
In the rail business's year end ABNC, rail was the preferred
bidder for a four-year contract worth more than GBP40 million for
the operation and maintenance of Network Rail's fleet of track
maintenance Stoneblowers, and a seven-year contract worth in excess
of GBP115 million for the supply, operation and maintenance of 13
track maintenance Tampers, also to Network Rail. Post year end the
Stoneblowers contract has subsequently been awarded to Balfour
Beatty.
Balfour Beatty's Track Partnership contract with London
Underground, to deliver essential track renewal work across the
network, is due for re-tender in 2018.
INFRASTRUCTURE INVESTMENTS
Financial review
The Investments business delivered another strong performance,
having continued its strategy of optimising value through the
disposal of operational assets, whilst also continuing to invest in
new opportunities.
Underlying profit from operations at GBP116 million (2016: GBP89
million) was higher than the prior year, predominantly due to an
increase in profit on disposals. Pre-disposals underlying operating
profit increased to GBP30 million (2016: GBP24 million) due to
higher profit from the US, primarily due to growth in new projects
and a non-recurring fee associated with military housing. Net
interest income remained broadly consistent year on year at GBP24
million (2016: GBP26 million) with underlying profit before tax at
GBP140 million (2016: GBP115 million).
Infrastructure Investments 2017 2016
GBPm GBPm
---------------------------- ------ ------
Pre-disposals operating
profit(3) 30 24
Profit on disposals(3) 86 65
---------------------------- ------ ------
Profit from operations(3) 116 89
Net interest income from
PPP concessions(+) 24 26
---------------------------- ------ ------
Profit before tax(3) 140 115
Non-underlying items (6) (6)
---------------------------- ------ ------
Statutory profit before
tax 134 109
---------------------------- ------ ------
(3) before non-underlying items (Note 8)
(+) 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
In 2017, the Infrastructure Investments business added three new
projects, made one full disposal and partially disposed of one
asset.
In the student accommodation sector the Group won a project for
Purdue University in Indiana which will provide a 835-bed apartment
complex on the campus. In the private rented and regeneration
sector, the business acquired a 15% stake in a private rental
housing portfolio covering three assets in Atlanta, Georgia,
totalling 882 units and encompassing 91 acres, and a 50% stake in a
228-unit community serving students enrolled at the University of
North Carolina at Wilmington.
In June, the business disposed of its interests in one
residential housing project at Carmendy, Florida for GBP2 million.
In December, the Group made a 12.5% partial sale in Connect Plus,
the company which operates the M25 orbital motorway, for GBP103
million (profit on disposal of GBP54 million). In the last week of
the year the Group subsequently sold an additional 7.5% stake in
Connect Plus for GBP62 million (profit on disposal of GBP32
million). Only the initial GBP103 million of cash was received
before year end, with the further GBP62 million received in
February 2018. Additionally, in February 2018, the Group made a
third partial disposal, selling 5% of Connect Plus for GBP42
million (profit on disposal of GBP21 million). In total, across the
2017 and 2018 financial years Balfour Beatty received GBP207
million for a 25% stake in Connect Plus. The Group retains a 15%
holding in the Connect Plus M25 asset.
Financial close was reached on three new projects where the
Group invests equity: the two private rented and regeneration
projects acquired in 2017; and at Sussex University for new student
accommodation on campus which will provide bedrooms for 2,117
students, together with new student amenities and a Students' Union
building. At year end five projects had not yet reached financial
close. In January 2018, financial close was reached at Purdue
University.
The business also closed on the second phase of a mixed-use
project for The University of Texas in Dallas. In the second phase,
the development team will expand the Northside first phase
development, delivering an additional 900 beds and more than 6,600
square feet of retail space. In addition, the Investments business
reached financial close on one fee-based student accommodation
development project in Oklahoma. In fee-based projects, no equity
will be invested. In January 2018, the business was named preferred
bidder on the Automated People Mover project at Los Angeles
airport. Balfour Beatty will own a 27% equity stake.
The Infrastructure Investments business continues to see
significant opportunities for future investment in its chosen
geographic markets in the UK and North America, including the US
administration's proposed PPP infrastructure investment
programme.
Directors' valuation
The Directors' valuation remained stable at GBP1,244 million
(2016: GBP1,220 million) despite GBP105 million being realised from
divestments in the period. The number of projects in the portfolio
increased from 69 to 71.
Movement in value 2016-2017 GBPm
Operational
performance
gains
Equity Distributions Sales Unwind of New project Gain on (inc. FX
2016 invested received proceeds discount wins sales movements) 2017
------------- ----- ----------- ------------- ------------ ----------- ----------- ------- ------------ -----
UK(5) 707 6 (21) (103) 56 - 3 (12) 636
North America 513 29 (32) (2) 41 14 - 45 608
------------- ----- ----------- ------------- ------------ ----------- ----------- ------- ------------ -----
Total(5) 1,220 35 (53) (105) 97 14 3 33 1,244
------------- ----- ----------- ------------- ------------ ----------- ----------- ------- ------------ -----
(5) 2017 valuation includes GBP62 million relating to the 7.5%
second partial disposal of the Connect Plus M25 asset, as the
disposal proceeds had not been received at year end. The proceeds
were subsequently received on 23 February 2018
The Group invested GBP35 million (2016: GBP65 million) in new
and existing projects. This reflected continued success in targeted
sectors with three new projects included in the Directors'
valuation for the first time. Cash yield from distributions
amounted to GBP53 million (2016: GBP64 million) as the portfolio
continued to generate cash flow to the Group net of investment.
The business continued its strategy of maximising value through
recycling equity from operationally proven projects, whilst
preserving interests in strategic projects that offer opportunities
to the wider Group. Two investments were sold or part sold during
the year for GBP105 million. In June, the business disposed of its
interests in one residential housing project at Carmendy, Florida
for a cash consideration of GBP2 million. In December the Group
made a 12.5% partial sale in Connect Plus, the company which
operates the M25 orbital motorway, for a cash consideration of
GBP103 million.
Unwind of discount at GBP97 million (2016: GBP90 million) is a
function of moving the valuation date by a year with the result
that future cash flows are discounted by one year less. Operational
performance movements resulted in a GBP33 million increase in the
value of the portfolio (2016: GBP61 million), consisting mainly of
an increase of GBP106 million due to the change in Federal
corporate income tax rates enacted in the US and a GBP56 million
reduction due to the rise in the value of sterling. The remainder
was due to a number of changes in cash flow forecasts, discount
rates and economic assumptions.
The methodology used for the Directors' valuation is unchanged,
producing a valuation that 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.
Demand for high-quality infrastructure investments in the
secondary market continues to exceed supply and the Group will
continue to sell investment assets timed to maximise value to
shareholders. With the low interest rate environment likely to
continue, the secondary market is expected to remain strong for the
foreseeable future.
The Investments portfolio is split relatively evenly across the
UK and North America (UK 51%, North America 49%). Within the UK
portfolio roads is still the largest sector, despite the 12.5%
partial sale of the Connect Plus M25 asset completed in 2017,
whilst in North America US military housing dominates the
portfolio. The Investments portfolio includes over GBP1 billion of
projects that have completed the construction phase and are now
operational.
Portfolio valuation December 2017
Value by sector
2017 (2016) 2017 2016
Sector No. projects GBPm GBPm
----------------------- --------------- ----- ------
Roads 13 (13) 290 366
Healthcare 4 (4) 136 140
Student accommodation 4 (4) 64 63
OFTOs 3 (3) 51 46
Waste & biomass 4 (4) 57 57
Other 5 (5) 38 35
----------------------- ----- -------- ----- ------
UK total 33 (33) 636 707
----------------------- ----- -------- ----- ------
US military housing 21 (21) 497 438
Healthcare & other PPP 3 (3) 28 9
Student accommodation 7 (6) 49 38
Residential housing 7 (6) 34 28
----------------------- ----- -------- ----- ------
North America total 38 (36) 608 513
----------------------- ----- -------- ----- ------
Total(5) 71 (69) 1,244 1,220
----------------------- ----- -------- ----- ------
Value by phase
2017 (2016) 2017 2016
Phase No. projects GBPm GBPm
----------------- --------------- ------ ------
Operations 56 (49) 1,089 1,059
Construction 10 (15) 130 134
Preferred bidder 5 (5) 25 27
----------------- ----- -------- ------ ------
Total(5) 71 (69) 1,244 1,220
----------------- ----- -------- ------ ------
Value by income type
2017 (2016) 2017 2016
Income type No. projects GBPm GBPm
-------------------------------- --------------- ------ ------
Availability based 25 (25) 518 572
Demand - operationally proven
(2+ years) 33 (32) 559 498
Demand - early stage (less than
2 years) 13 (12) 167 150
-------------------------------- ----- -------- ------ ------
Total(5) 71 (69) 1,244 1,220
-------------------------------- ----- -------- ------ ------
(5) 2017 valuation includes GBP62 million relating to the 7.5%
second partial disposal of the Connect Plus M25 asset, as the
disposal proceeds had not been received at year end. The proceeds
were subsequently received on 23 February 2018
UK portfolio
In 2017 GBP6 million of equity was invested across four projects
in the portfolio: the student accommodation project at Foundry
Court in Glasgow; the regeneration development at East Wick &
Sweetwater; and the biomass projects Birmingham Bio Power and
Welland Bio Power.
During the year, there was a partial sale of 12.5% of the
Connect Plus M25 project which generated proceeds of GBP103
million, above the Directors' valuation of the asset. The Group
agreed the sale of a further 7.5% on 29 December 2017 for GBP62
million, reducing its interest in the asset to 20% at the year end.
The proceeds from this sale were received in February 2018 and so
are included in the Directors' valuation at year end.
In aggregate operational performance movements resulted in a
GBP12 million reduction in value arising from the net effect of a
number of changes to assumptions including higher short-term
inflation rates, lower short-term interest rates, higher discount
rates on projects where the risk is assumed to have increased and
revised cash flow forecasts for certain projects.
Discount rates applied to the UK portfolio range between 7% and
12% depending on project risk and maturity. The implied weighted
average discount rate for the UK portfolio is 8.5% (2016: 8.3%). A
1% change in discount rate would change the value of the UK
portfolio by approximately GBP62 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 increase 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, the
UK Government passed legislation in 2017 restricting the tax
deductibility of interest expense. The legislation is complex and
its application in certain areas will require further
clarification, but the current assessment is that the impact on the
Directors' valuation is not material.
North American portfolio
In 2017, the business won three projects: two investments in
private rental housing portfolios at Wilmington in North Carolina
and Atlanta in Georgia; and a student accommodation project for
Purdue University in Indiana.
Investment of GBP29 million was made during the period in three
existing and two new projects: two hospital projects in Canada and
a student accommodation project at The University of Texas; and the
two stakes acquired in private rental housing portfolios in Atlanta
and Wilmington. Carmendy Square, Florida, was sold in the period,
generating a net GBP2 million in proceeds.
Operational performance movements resulted in a GBP45 million
increase in the value of the portfolio, consisting of an increase
of GBP106 million due to the change in Federal corporate income tax
rates enacted in the US, a GBP56 million reduction due to the
strengthening of sterling against the US dollar and a GBP5 million
reduction due to revised cash flow forecasts for certain
projects.
Discount rates applied to the North American portfolio range
between 7.5% and 10%. The implied weighted average discount rate is
8.2% (2016: 8.2%) and a 1% change in the discount rate would change
the value of the North American portfolio by approximately GBP84
million.
Under the Tax Cuts and Jobs Act passed by the US Government in
December 2017 there are provisions to restrict the tax
deductibility of interest expense. The provisions are complex and
their application requires clarification in a number of areas, but
the initial assessment is that the restriction will not have a
material effect on the Directors' valuation. The Group will monitor
the application of the rules and any forthcoming guidance.
OTHER FINANCIAL ITEMS
Taxation
The Group's underlying profit before tax from continuing
operations for subsidiaries of GBP106 million (2016: GBP5 million)
resulted in an underlying tax charge of GBP23 million (2016: GBP12
million).
Discontinued operations
The Group has presented its 49% interests in its Middle East
joint ventures as discontinued operations in 2017, with
comparatives restated accordingly. The sale of these interests was
completed in March 2017 and resulted in a non-underlying gain on
disposal of GBP5 million in 2017.
Goodwill
The goodwill on the Group's balance sheet at 31 December 2017
decreased to GBP874 million (2016: GBP937 million). The decrease
was due to currency translation differences of GBP46 million and
the disposal of goodwill relating to Heery International Inc of
GBP17 million. The Group has conducted impairment reviews on its
goodwill balance at the year end and has concluded that it was
fully recoverable.
Banking facilities
The Group's committed revolving credit facility totals GBP400
million. The purpose of this facility is to provide liquidity from
a set of core relationship banks to support Balfour Beatty in its
activities. The Group completed its refinancing in December 2015
with the GBP400 million facility extending through to 2018. In
November 2017, GBP375 million of the facility was extended until
December 2020. At 31 December 2017, all of this facility was
undrawn.
Financial risk factors and going concern
The key financial risk factors for the Group remain largely
unchanged.
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
2017, 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 the going concern assessment period.
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 GBP335 million at
31 December 2017;
-- the Group's portfolio of PPP investments comprises reasonably
realisable securities which can be sold to meet funding
requirements as necessary; and
-- the Group has access to committed credit facilities totalling
GBP400 million through to December 2018 and GBP375 million to
December 2020. At 31 December 2017, this facility was wholly
undrawn.
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 this announcement with the aim of providing transparency
and clarity on the measures adopted internally to assess
performance.
Throughout this announcement, the Group has presented financial
performance measures which are considered most relevant to Balfour
Beatty and are used to manage the Group's performance.
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 are encouraged to review this announcement in its
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 announcement 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
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 102 to 109 of the Annual
Report and Accounts 2017.
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; and
-- 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 have been treated as non-underlying
items as the Group is committed to exiting this part of the
business.
Further details of these non-underlying items are provided in
Note 8.
A reconciliation has been provided below to show how the Group's
statutory results are adjusted to exclude non-underlying items and
their impact on its statutory financial information, both as a
whole and in respect of specific line items.
Reconciliation of 2017 statutory results to performance
measures
US
Build Additional Federal UK
2017 to Last Results loss on tax deferred 2017
statutory restructuring Intangible Gains on of Rail AWPR rate tax performance
results costs amortisation disposals Germany contract change asset measures
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Continuing
operations
------------- ------------ --------- ------- ---------- ------- --------
Revenue
including
share of
joint
ventures and
associates
(performance) 8,264 - - - (30) - - - 8,234
Share of
revenue of
joint
ventures and
associates (1,348) - - - 8 - - - (1,340)
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Group revenue
(statutory) 6,916 - - - (22) - - - 6,894
Cost of sales (6,605) - - - 20 44 - - (6,541)
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Gross profit 311 - - - (2) 44 - - 353
Gain on
disposals of
interests in
investments 86 - - - - - - - 86
Amortisation
of acquired
intangible
assets (9) - 9 - - - - - -
Other net
operating
expenses (299) 12 - (17) 2 - - - (302)
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Group
operating
profit 89 12 9 (17) - 44 - - 137
Share of
results of
joint
ventures and
associates 59 - - - - - - - 59
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Profit from
operations 148 12 9 (17) - 44 - - 196
Investment
income 42 - - - - - - - 42
Finance costs (73) - - - - - - - (73)
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Profit before
taxation 117 12 9 (17) - 44 - - 165
Taxation 45 - (3) 1 - - (32) (34) (23)
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Profit for the
year from
continuing
operations 162 12 6 (16) - 44 (32) (34) 142
Profit for the
year from
discontinued
operations 6 - - (5) - - - - 1
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Profit for the
year 168 12 6 (21) - 44 (32) (34) 143
-------------- --------- ------------- ------------ --------- ------- ---------- ------- -------- -----------
Reconciliation of 2017 statutory results to performance measures
by segment
US
Build Additional Federal UK
2017 to Last Results loss on tax deferred 2017
statutory restructuring Intangible Gains on of Rail AWPR rate tax performance
Profit/(loss) results costs amortisation disposals Germany contract change asset measures
from operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- --------- ------------- ------------ ------------ ------- ---------- ------- -------- -----------
Segment
------------- ------------ ------------ ------- ---------- ------- --------
Construction
Services 36 6 4 (18) - 44 - - 72
Support
Services 39 2 - - - - - - 41
Infrastructure
Investments 110 - 5 1 - - - - 116
Corporate
activities (37) 4 - - - - - - (33)
--------------- --------- ------------- ------------ ------------ ------- ---------- ------- -------- -----------
Total 148 12 9 (17) - 44 - - 196
--------------- --------- ------------- ------------ ------------ ------- ---------- ------- -------- -----------
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(4) costs amortisation (releases) disposal of ES Germany Other measures(4)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Continuing
operations
------------- ------------ ---------- --------- ------- --------- -----
Revenue
including
share of
joint
ventures and
associates
(performance) 8,368 - - - - (3) (150) - 8,215
Share of
revenue of
joint
ventures and
associates (1,445) - - - - - 12 - (1,433)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
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 58 - - (1) - - - - 57
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit/(loss)
from
operations 17 14 9 30 (8) 6 (1) 2 69
Investment
income 75 - - - - - - - 75
Finance costs (82) - - - - - - - (82)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit/(loss)
before
taxation 10 14 9 30 (8) 6 (1) 2 62
Taxation (8) (4) (3) - - - 3 - (12)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit/(loss)
for the year
from
continuing
operations 2 10 6 30 (8) 6 2 2 50
Profit for the
year from
discontinued
operations 22 - - - (24) - - - (2)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit for the
year 24 10 6 30 (32) 6 2 2 48
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
(4) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
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(4) costs amortisation (releases) disposal of ES Germany Other measures(4)
from operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
Segment
------------- ------------ ---------- --------- ------- -------- -----
Construction
Services (55) 12 3 19 (5) 6 (1) - (21)
Support
Services 22 1 - 11 - - - - 34
Infrastructure
Investments 83 - 6 - (3) - - 3 89
Corporate
activities (33) 1 - - - - - (1) (33)
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
Total 17 14 9 30 (8) 6 (1) 2 69
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
(4) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
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:
2017 2016
GBPm GBPm
------------------------------------------------- ----- -----
Underlying profit from operations (section
(b) and Note 5) 116 89
Add: Subordinated debt interest receivable(+) 26 29
Interest receivable on PPP financial
assets(+) 11 21
Less: Non-recourse borrowings finance cost(+) (13) (24)
------ ----------------------------------------- ----- -----
Underlying profit before tax 140 115
Non-underlying items (section (b) and Note
5) (6) (6)
------------------------------------------------- ----- -----
Statutory profit before tax 134 109
------------------------------------------------- ----- -----
(+) 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 basic EPS to performance EPS
2017 2016(4)
pence pence
-------------------------------------------------------------------------------------- ------ -------
Statutory basic earnings per ordinary share 24.7 3.5
Less: earnings from discontinued operations (1.0) (3.3)
-------------------------------------------------------------------------------------- ------ -------
Statutory basic earnings per ordinary share from continuing operations 23.7 0.2
Amortisation of acquired intangible assets 0.8 0.9
Other non-underlying items (3.6) 6.1
-------------------------------------------------------------------------------------- ------ -------
Underlying basic earnings per ordinary share from continuing operations (performance) 20.9 7.2
-------------------------------------------------------------------------------------- ------ -------
(4) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
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 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 cash/borrowings reconciliation
2017 2017 2016 2016
statutory Adjustment performance statutory Adjustment performance
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- --------- ----------- ------------ --------- ---------- -----------
Total cash within the Group 968 (135) 833 769 (7) 762
--------- ----------- ------------ --------- ---------- -----------
Cash and cash - infrastructure
equivalents concessions 135 (135) - 7 (7) -
- other 833 - 833 762 - 762
--------- ----------- ------------ --------- ---------- -----------
Total debt within the Group (1,041) 543 (498) (929) 340 (589)
--------- ----------- ------------ --------- ---------- -----------
Borrowings - non-recourse loans (440) 440 - (240) 240 -
- other (498) - (498) (589) - (589)
Liability component of preference shares (103) 103 - (100) 100 -
-------------------------------------------- --------- ----------- ------------ --------- ---------- -----------
Net (borrowings)/cash (73) 408 335 (160) 333 173
-------------------------------------------- --------- ----------- ------------ --------- ---------- -----------
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
cash of GBP42 million for 2017 (2016: GBP46 million net
borrowings).
Using a statutory measure (inclusive of non-recourse elements
and the liability component of the Company's preference shares)
gives average net borrowings of GBP117 million for 2017 (2016:
GBP230 million).
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 GBP1.24
billion at year end (2016: GBP1.22 billion). 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.
Reconciliation of the net assets of the Infrastructure
Investments segment to the comparable statutory measure of the
Investments portfolio included in the Directors' valuation
2017 2016
GBPm GBPm
------------------------------------------------------- ------ ------
Net assets of the Infrastructure Investments
segment (refer to Note 5.1) 629 631
Less: Recourse loans presented within Corporate
activities relating to Infrastructure Investments
projects (13) (12)
Less: Net assets not included within the
Directors' valuation
- Housing division (24) (21)
- Infrastructure asset* - (6)
------ ----------------------------------------------- ------ ------
Comparable statutory measure of the Investments
portfolio under IFRS 592 592
------------------------------------------------------- ------ ------
* Infrastructure asset represents the Group's carrying value of
Blackpool Airport. Blackpool Airport was not included in the
Directors' valuation and has been disposed in 2017.
Comparison of the statutory measure of the Investments portfolio
to its performance measure
2017 2016
GBPm GBPm
----------------------------------------------------- ------ ------
Statutory measure of the Investments portfolio
(as above) 592 710
Difference arising from the Directors'
valuation being measured on a discounted
cash flow basis compared to the statutory
measure primarily derived using a combination
of the following IFRS bases:
* historical cost;
* amortised cost; and
* fair value 652 628
----------------------------------------------------- ------ ------
Directors' valuation (performance measure)(+) 1,244 1,220
----------------------------------------------------- ------ ------
(+) 2017 valuation includes GBP62 million relating to the 7.5%
second partial disposal of the Connect Plus M25 asset, as the
disposal proceeds had not been received at year end. The proceeds
were subsequently received on 23 February 2018.
The difference between the statutory measure and the Directors'
valuation (performance measure) of the Group's Investments
portfolio is not equal to the gain on disposal that would result if
the portfolio was fully disposed at the Directors' valuation. This
is because the gain/loss on disposal would be affected by the
recycling of items which were previously recognised directly within
reserves, which are material and can alter the resulting gain/loss
on disposal.
The statutory measure and the Directors' valuation are
fundamentally different due to the different methodologies used to
derive the valuation of these assets within the Investments
portfolio.
As referred to in the Directors' valuation section, the
Directors' valuation is calculated using discounted cash flows. In
deriving these cash flows, assumptions have been made and different
discount rates used which are updated at each valuation date.
Unlike the Directors' valuation, the assets measured under
statutory measures using the appropriate IFRS accounting standards
are valued using a combination of the following methods:
-- historical cost;
-- amortised cost; and
-- fair value for certain assets and liabilities within the PPP
portfolio, for which some assumptions are set at inception and some
are updated at each reporting period.
There is also an element of the Directors' valuation that is not
represented by an asset in the Group's balance sheet. This relates
to the management services contracts within the Investments
business that are valued in the Directors' valuation based on the
future income stream expected from these contracts.
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:
2017 statutory growth compared to performance growth
Construction Services
---------------------------
UK US Gammon Total Support Services Infrastructure Investments Total
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
Revenue (GBPm)
----- ----- ------
2017 statutory 2,011 3,586 - 5,597 1,031 288 6,916
2016 statutory 2,282 3,330 - 5,612 1,076 235 6,923
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
Statutory growth (%) (13)% 8% - - (4)% 23% -
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
2017 performance(^) 1,998 3,634 1,017 6,649 1,061 524 8,234
2016 performance retranslated(^) 2,143 3,595 1,009 6,747 1,105 591 8,443
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
Performance CER growth (%) (7)% 1% 1% (2)% (4)% (11)% (3)%
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
Order book (GBPbn)
----- ----- ------
2017 2.7 4.3 1.3 8.3 3.1 - 11.4
2016 2.3 5.5 1.5 9.3 3.1 - 12.4
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
Growth (%) 17% (22)% (13)% (11)% - - (8)%
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
2017 2.7 4.3 1.3 8.3 3.1 - 11.4
2016 retranslated 2.3 5.0 1.4 8.7 3.1 - 11.8
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
CER growth (%) 17% (14)% (7)% (5)% - - (3)%
--------------------------------- ----- ----- ------ ----- ---------------- -------------------------- -----
(^) Performance revenue is underlying revenue from continuing
operations including share of revenue from 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 2017
2017 2016(2)
------------------------------------- -------------------------------------------
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 8,234 30 8,264 8,215 153 8,368
Share of revenue
of joint
ventures and
associates 14 (1,340) (8) (1,348) (1,433) (12) (1,445)
---------- ---------------- ------- ---------- -------------- ---------------
Group revenue 6,894 22 6,916 6,782 141 6,923
Cost of sales (6,541) (64) (6,605) (6,503) (136) (6,639)
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Gross
profit/(loss) 353 (42) 311 279 5 284
Gain on disposals
of interests in
investments 20.2 86 - 86 65 - 65
Amortisation of
acquired
intangible
assets 8 - (9) (9) - (9) (9)
Other net
operating
expenses (302) 3 (299) (332) (49) (381)
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Group operating
profit/(loss) 137 (48) 89 12 (53) (41)
Share of results
of joint
ventures and
associates 14 59 - 59 57 1 58
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Profit/(loss)
from operations 196 (48) 148 69 (52) 17
Investment income 6 42 - 42 75 - 75
Finance costs 7 (73) - (73) (82) - (82)
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Profit/(loss)
before taxation 165 (48) 117 62 (52) 10
Taxation 9 (23) 68 45 (12) 4 (8)
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Profit/(loss) for
the year from
continuing
operations 142 20 162 50 (48) 2
Profit/(loss) for
the year from
discontinued
operations 1 5 6 (2) 24 22
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Profit/(loss) for
the year 143 25 168 48 (24) 24
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Attributable to
Equity holders 143 25 168 48 (24) 24
Non-controlling
interests - - - - - -
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
Profit/(loss) for
the year 143 25 168 48 (24) 24
----------------- ----- ---------- ---------------- ------- ---------- -------------- ---------------
(1) Before non-underlying items (Note 8).
(2) Re-presented to classify the Group's 49% interests in Dutco Balfour Beatty LLC and BK
Gulf LLC as discontinued operations.
Notes 2017 pence 2016(2) pence
--------------------------------------------------------------- ----------- -------------- -------------
Basic earnings per ordinary share
- continuing operations 10 23.7 0.2
- discontinued operations 10 1.0 3.3
--------------------------------------------------------------- ----------- -------------- -------------
10 24.7 3.5
--------------------------------------------------------------- ----------- -------------- -------------
Diluted earnings per ordinary share
- continuing operations 10 23.4 0.2
- discontinued operations 10 1.0 3.3
--------------------------------------------------------------- ----------- -------------- -------------
10 24.4 3.5
--------------------------------------------------------------- ----------- -------------- -------------
Dividends per ordinary share proposed for the year 11 3.6 2.7
--------------------------------------------------------------- ----------- -------------- -------------
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Group Statement of Comprehensive Income
For the year ended 31 December 2017
2017 2016
------ ----------- ----- ----- ----------- -----
Share
Share of
of joint joint
ventures ventures
and and
Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- ------ ----------- ----- ----- ----------- -----
Profit/(loss) for the year 108 60 168 (32) 56 24
Other comprehensive income/(loss)
for the year
Items which will not subsequently
be reclassified to the income
statement
------ ----------- ----- ----- ----------- -----
Actuarial gains/(losses) on
retirement benefit liabilities 242 4 246 (121) 1 (120)
Tax on above (37) - (37) 2 - 2
------ ----------- ----- ----- ----------- -----
205 4 209 (119) 1 (118)
------ ----------- ----- ----- ----------- -----
Items which will subsequently
be reclassified to the income
statement
------ ----------- ----- ----- ----------- -----
Currency translation differences (30) (18) (48) 51 41 92
Fair value
revaluations - PPP financial assets 3 60 63 27 10 37
- cash flow hedges 4 11 15 (16) (92) (108)
available-for-sale
investments in mutual
- funds 3 - 3 1 - 1
Recycling of revaluation reserves
to the income statement on
disposal(^) - (85) (85) (17) 9 (8)
Tax on above - (13) (13) (1) 15 14
------ ----------- ----- ----- ----------- -----
(20) (45) (65) 45 (17) 28
------ ----------- ----- ----- ----------- -----
Total other comprehensive
income/(loss) for the year 185 (41) 144 (74) (16) (90)
--------------------------------------------- ------ ----------- ----- ----- ----------- -----
Total comprehensive income/(loss)
for the year 293 19 312 (106) 40 (66)
--------------------------------------------- ------ ----------- ----- ----- ----------- -----
Attributable to
Equity holders 312 (67)
Non-controlling interests - 1
--------------------------------------------- ------ ----------- ----- ----- ----------- -----
Total comprehensive income/(loss)
for the year 312 (66)
--------------------------------------------- ------ ----------- ----- ----- ----------- -----
(^) 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 2017
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 2016 345 65 22 196 144 54 4 830
Total comprehensive
income/(loss)
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
Total comprehensive
income/(loss)
for the year - - - 19 (20) 313 - 312
Ordinary dividends - - - - - (20) - (20)
Joint ventures' and
associates'
dividends - - - (69) - 69 - -
Movements relating to
share-based
payments - - - - 6 1 - 7
Reserve transfers relating
to joint venture and
associate
disposals - - - (21) - 21 - -
Minority interests - - - - - - 5 5
Convertible bonds repurchase - - - - (2) 2 - -
At 31 December 2017 345 65 22 113 175 336 10 1,066
------------------------------ --------- -------- -------- ------------ --------- --------- ------------ -----
Group Balance Sheet
At 31 December 2017
2017 2016
Notes GBPm GBPm
------------------------------------------------------------ ----- ------- -------
Non-current assets
Intangible assets - goodwill 12 874 937
- other 13 281 225
Property, plant and equipment 157 181
Investment properties 46 36
Investments in joint ventures and associates 14 531 628
Investments 39 45
PPP financial assets 163 163
Trade and other receivables 15 216 180
Retirement benefit assets 17 156 -
Deferred tax assets 52 54
Derivative financial instruments 1 3
2,516 2,452
------------------------------------------------------------ ----- ------- -------
Current assets
Inventories and non-construction work
in progress 107 101
Due from construction contract customers 377 380
Trade and other receivables 15 899 1,066
Cash and cash equivalents - infrastructure concessions 19.3 135 7
- other 19.3 833 762
Current tax receivable 8 8
Derivative financial instruments 2 1
------------------------------------------------------------ ----- ------- -------
2,361 2,325
Total assets 4,877 4,777
------------------------------------------------------------ ----- ------- -------
Current liabilities
Due to construction contract customers (535) (542)
Trade and other payables 16 (1,542) (1,752)
Provisions (194) (147)
Borrowings - non-recourse loans 19.3 (8) (47)
- other 19.3 (268) (56)
Current tax payable (15) (18)
Derivative financial instruments (5) (6)
------------------------------------------------------------ ----- ------- -------
(2,567) (2,568)
------------------------------------------------------------ ----- ------- -------
Non-current liabilities
Trade and other payables 16 (157) (151)
Provisions (98) (126)
Borrowings - non-recourse loans 19.3 (432) (193)
- other 19.3 (230) (533)
Liability component of preference shares (103) (100)
Retirement benefit liabilities 17 (124) (231)
Deferred tax liabilities (70) (80)
Derivative financial instruments (30) (33)
------------------------------------------------------------ ----- ------- -------
(1,244) (1,447)
------------------------------------------------------------ ----- ------- -------
Total liabilities (3,811) (4,015)
------------------------------------------------------------ ----- ------- -------
Net assets 1,066 762
------------------------------------------------------------ ----- ------- -------
Equity
Called-up share capital 345 345
Share premium account 65 65
Special reserve 22 22
Share of joint ventures' and associates'
reserves 113 184
Other reserves 175 191
Retained profits/(losses) 336 (50)
------------------------------------------------------------ ----- ------- -------
Equity attributable to equity holders
of the parent 1,056 757
Non-controlling interests 10 5
------------------------------------------------------------ ----- ------- -------
Total equity 1,066 762
------------------------------------------------------------ ----- ------- -------
Group Statement of Cash Flows
For the year ended 31 December 2017
2017 2016(2,#)
Notes GBPm GBPm
------------------------------------------------------------------------ ----- ----- ---------
Cash flows from/(used in) operating activities
Cash generated from/(used in):
- continuing
operations - underlying(1) 19.1 62 (132)
- non-underlying 19.1 (21) (15)
- discontinued operations 19.1 - -
Income taxes (paid)/received (3) 11
------------------------------------------------------------------------ ----- ----- ---------
Net cash generated from/(used in) operating
activities 38 (136)
------------------------------------------------------------------------ ----- ----- ---------
Cash flows from investing activities
Dividends received from joint ventures and
associates:
- infrastructure concessions 16 20
- other 53 23
Interest received - infrastructure concessions 9 19
Interest received - other(#) 12 13
Acquisition of businesses, net of cash and
cash equivalents acquired 20.1 (3) (6)
Purchases
of: - intangible assets - infrastructure concessions (76) (6)
- intangible assets - other (5) (5)
- property, plant and equipment - infrastructure
concessions - (14)
- property, plant and equipment - other (20) (27)
- investment properties (3) (32)
- other investments (1) (1)
Investments in and long-term loans to joint
ventures and associates (30) (37)
PPP financial assets cash expenditure (1) (31)
PPP financial assets cash receipts 15 39
Disposals - investments in joint ventures - infrastructure
of: concessions 20.2 103 155
- investments in joint ventures - other 3 2
* subsidiaries net of cash disposed, separation and
transaction costs - infrastructure concessions 4 17
* subsidiaries net of cash disposed, separation and
transaction costs - other 36 14
- property, plant and equipment 11 9
- other investments 8 5
----------------------------------------------------------------------- ----- ----- ---------
Net cash from investing activities 131 157
------------------------------------------------------------------------ ----- ----- ---------
Cash flows from financing activities
Purchase of ordinary shares (2) (4)
Proceeds
from: - other new loans - infrastructure concessions 19.4 212 65
- other new loans - other 19.4 - 52
Repayments
of: - loans - infrastructure concessions 19.4 (4) (25)
- loans - other 19.4 (52) (1)
Repurchase of convertible bonds 19.4 (21) -
Ordinary dividends paid 11 (20) (6)
Interest paid - infrastructure concessions (16) (24)
Interest paid - other(#) (24) (41)
Preference dividends paid (12) (12)
------------------------------------------------------------------------ ----- ----- ---------
Net cash from financing activities 61 4
------------------------------------------------------------------------ ----- ----- ---------
Net increase in cash and cash equivalents 230 25
Effects of exchange rate changes (30) 80
Cash and cash equivalents at beginning of
year 768 663
Cash and cash equivalents at end of year 19.2 968 768
------------------------------------------------------------------------ ----- ----- ---------
(1) Before non-underlying items (Note 8).
2 Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
# Re-presented to show interest received and paid in relation to
the Group's offset arrangements on a net basis.
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 2017. The presentational currency of the Group is
sterling.
The financial information in this announcement, which was
approved by the Board of Directors on 13 March 2018, does not
constitute the Company's statutory accounts for the years ended 31
December 2017 or 2016, but is derived from those accounts.
Statutory accounts for 2016 have been delivered to the Registrar of
Companies and those for 2017 will be delivered following the
Company's Annual General Meeting. The auditor has reported on the
2017 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 March 2018.
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 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:
- IAS 7 Disclosure Initiative
- IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses.
The above new and amended standards do not have a material
effect on the Group.
3 Accounting policies continued
3.2 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 2017:
-- IFRS 9 Financial Instruments
-- IFRS 15 Revenue from Contracts with Customers
-- IFRS 16 Leases
-- IFRS 17 Insurance Contracts
-- IFRIC 22 Foreign Currency Transactions and Advance Consideration
-- IFRIC 23 Uncertainty over Income Tax Treatments
-- Amendments to the following standards:
- IAS 28 Long-term Interests in Associates and Joint Ventures
- IAS 40 Transfers of Investment Property
- IFRS 2 Classification and Measurement of Share-based Payment Transactions
- IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
- IFRS 9 Prepayment Features with Negative Compensation
- Clarifications to IFRS 15 Revenue from Contracts with Customers
- Improvements to IFRSs (2014 - 2016)
- Improvements to IFRSs (2015 - 2017).
The Directors have completed the impact assessment of IFRS 9 and
have concluded that under the new standard, which will be adopted
for the financial year ending 31 December 2018, the Group will be
able to continue to record movements in its PPP financial assets
through other comprehensive income (OCI) using the fair value
through OCI category. This is because these financial assets are
held within a business model whose objective at Group level is
achieved by both collecting contractual cash flows and selling
financial assets and the contractual terms of the financial asset
meet the "solely payments of principal and interest on the
principal outstanding" criterion. Therefore, there will be no
quantitative impact on the Group upon adoption of IFRS 9 at 1
January 2018.
The Directors have also completed their assessment of the impact
of IFRS 15 and the Group will adopt the new standard for the
financial year ending 31 December 2018 retrospectively using the
cumulative effect approach. As a result, the Group will restate its
opening equity position as at 1 January 2018 by a credit of GBP3m
to reflect the impact of transitioning to IFRS 15. This adjustment
primarily reflects the impact of unbundling a handful of contracts
according to what the Group has assessed to be the performance
obligation to be delivered to the customer. Using the five-step
model required by the new standard, the impact of the GBP3m credit
to equity represents the acceleration of revenue on transition to
IFRS 15 which was previously not recognised by the Group under the
previous revenue standards. IFRS15 would have resulted in an
immaterial impact on the Group's income statement for the year
ended 31 December 2017.
In addition to the impact on equity, there will be balance sheet
reclassifications as a result of moving away from IAS 11 balance
sheet captions to those prescribed by IFRS 15. Full IFRS 15
disclosures will be presented in the Annual Report and Accounts
2018. As the Group has chosen to adopt the cumulative effect
approach, the comparative information will not be restated and the
Group will continue to present its 2017 results under the previous
revenue standards, IAS 11 and IAS 18.
3 Accounting policies continued
3.2 Accounting standards not yet adopted by the Group
continued
The Directors continue to assess the impact of IFRS 16. IFRS 16
Leases was issued by the IASB in January 2016 and is effective for
accounting periods beginning on or after 1 January 2019. The new
standard will replace IAS 17 Leases and will eliminate the
classification of leases as either operating leases or finance
leases and, instead, introduce a single lessee accounting model.
The adoption of IFRS 16 is not expected to have a significant
impact on the Group's net results or net assets, although the full
impact will be subject to further assessment.
The Directors do not expect the other standards above to have a
material quantitative effect. The Group has chosen not to adopt any
of the above standards and interpretations earlier than
required.
3.3 Judgements and key sources of estimation uncertainty
The Group's principal judgements and key sources of estimation
uncertainty are set out in Note 2.27 of the Annual Report and
Accounts 2017.
In the construction portfolio there are a small number of
long-term and complex projects where the Group has incorporated
judgements over contractual entitlements. The range of potential
outcomes as a result of uncertain future events could result in a
materially positive or negative swing to profitability and cash
flow. These contracts are primarily within the Group's major
infrastructure business units in the UK, US and Far East.
4 Exchange rates
The following key exchange rates were applied in these financial
statements.
Average rates
GBP1 buys 2017 2016 Change
---------- ----- ----- ------
US$ 1.29 1.35 (4.4)%
HK$ 10.07 10.51 (4.2)%
Euro 1.14 1.23 (7.3)%
---------- ----- ----- ------
Closing rates
GBP1 buys 2017 2016 Change
---------- ----- ---- ------
US$ 1.35 1.23 9.8%
HK$ 10.56 9.57 10.3%
Euro 1.13 1.17 (3.4)%
---------- ----- ---- ------
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, 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 - performance
by activity from continuing Construction Support Infrastructure Corporate
operations Services Services Investments activities Total
------------------------------------------------------------ ------------ -------- -------------- ---------- -------
2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm
------------ -------- -------------- ---------- -------
Revenue including share
of joint ventures and associates(1) 6,649 1,061 524 - 8,234
Share of revenue of joint
ventures and associates(1) (1,074) (30) (236) - (1,340)
------------ -------- -------------- ---------- -------
Group revenue(1) 5,575 1,031 288 - 6,894
------------------------------------------------------------ ------------ -------- -------------- ---------- -------
Group operating profit/(loss)(1) 42 41 87 (33) 137
Share of results of joint
ventures and associates(1) 30 - 29 - 59
------------------------------------------------------------ ------------ -------- -------------- ---------- -------
Profit/(loss) from operations(1) 72 41 116 (33) 196
Non-underlying items:
------------ -------- -------------- ---------- -------
* additional loss on the AWPR contract as a result of
Carillion's liquidation (44) - - - (44)
* amortisation of acquired intangible assets (4) - (5) - (9)
* other non-underlying items 12 (2) (1) (4) 5
------------------------------------------------------------ ------------ -------- -------------- ---------- -------
(36) (2) (6) (4) (48)
------------ -------- -------------- ---------- -------
Profit/(loss) from operations 36 39 110 (37) 148
Investment income 42
Finance costs (73)
------------------------------------------------------------ ------------ -------- -------------- ---------- -------
Profit before taxation 117
------------------------------------------------------------ ------------ -------- -------------- ---------- -------
(1) Before non-underlying items (Note 8).
5 Segment analysis continued
5.1 Total Group continued
Income statement - performance
by activity from continuing Construction Support Infrastructure Corporate
operations Services Services Investments activities Total
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
2016(2) 2016 2016 2016 2016(2)
GBPm GBPm GBPm GBPm GBPm
------------ -------- -------------- ---------- -------
Revenue including share of
joint ventures and associates(1) 6,537 1,103 575 - 8,215
Share of revenue of joint
ventures and associates(1) (1,066) (27) (340) - (1,433)
------------ -------- -------------- ---------- -------
Group revenue(1) 5,471 1,076 235 - 6,782
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
Group operating profit/(loss)(1) (50) 33 62 (33) 12
Share of results of joint
ventures and associates(1) 29 1 27 - 57
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
Profit/(loss) from operations(1) (21) 34 89 (33) 69
Non-underlying items:
------------ -------- -------------- ---------- -------
* include results from certain legacy 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 (55) 22 83 (33) 17
------------ -------- -------------- ----------
Investment income 75
Finance costs (82)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
Profit before taxation 10
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
(1) Before non-underlying items (Note 8).
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Construction Support Infrastructure Corporate
Assets and liabilities by activity Services Services Investments activities Total
------------------------------------ ------------ --------- -------------- ----------- -------
2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ --------- -------------- ----------- -------
Due from construction contract
customers 254 123 - - 377
Due to construction contract
customers (440) (95) - - (535)
Inventories and non-construction
work in progress 29 51 27 - 107
Trade and other receivables -
current 688 96 101 14 899
Trade and other payables - current (1,205) (242) (53) (42) (1,542)
Provisions - current (150) (18) (6) (20) (194)
------------------------------------ ------------ --------- -------------- ----------- -------
Working capital from continuing
operations* (824) (85) 69 (48) (888)
------------------------------------ ------------ --------- -------------- ----------- -------
* Includes non-operating items and current working capital.
Total assets 2,119 539 1,264 955 4,877
Total liabilities (2,030) (270) (635) (876) (3,811)
------------------- ------- ----- ----- ----- -------
Net assets 89 269 629 79 1,066
------------------- ------- ----- ----- ----- -------
5 Segment analysis continued
5.1 Total Group
Assets and liabilities by Construction Support Infrastructure Corporate
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 (liabilities)/assets (228) 154 631 205 762
--------------------------- ------- ----- ----- ----- -------
Other information - continuing Construction Support Infrastructure Corporate
operations Services Services Investments activities Total
----------------------------------- ------------ --------- -------------- ----------- -----
2017 2017 2017 2017 2017
GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------------ --------- -------------- ----------- -----
Capital expenditure on property,
plant and equipment 5 9 - 6 20
Capital expenditure on investment
properties - - 3 - 3
Capital expenditure on intangible
assets - - 82 5 87
Depreciation 13 8 3 5 29
Gain on disposals of interests
in investments (Note 20.2) - - 86 - 86
----------------------------------- ------------ --------- -------------- ----------- -----
2016 2016 2016 2016 2016
GBPm GBPm GBPm GBPm GBPm
------------------------------------ ----- --------- -------- -------- --------
Capital expenditure on property,
plant and equipment 17 3 14 7 41
Capital expenditure on investment
properties - - 32 - 32
Capital expenditure on intangible
assets - 5 6 - 11
Depreciation 14 11 2 3 30
Gain on disposals of interests
in investments - - 65 - 65
------------------------------------ ----- --------- -------- -------- --------
Rest
Performance by geographic destination United United of
- continuing operations Kingdom States World Total
------------------------------------------- --------- -------- -------- ----------
2017 2017 2017 2017
GBPm GBPm GBPm GBPm
Revenue including share of joint
ventures and associates 3,200 3,819 1,245 8,264
Share of revenue of joint ventures
and associates (139) (55) (1,154) (1,348)
------------------------------------------- --------- -------- -------- ----------
Group revenue 3,061 3,764 91 6,916
------------------------------------------- --------- -------- -------- ----------
2016 2016 2016(2) 2016(2)
GBPm GBPm GBPm GBPm
------------------------------------------- --------- -------- -------- ----------
Revenue including share of joint
ventures and associates 3,465 3,533 1,370 8,368
Share of revenue of joint ventures
and associates (202) (104) (1,139) (1,445)
------------------------------------------- --------- -------- -------- ----------
Group revenue 3,263 3,429 231 6,923
------------------------------------------- --------- -------- -------- ----------
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
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
2017 2017 2017 2016 2016 2016
Underlying profit from operations(1) GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ------ --------------- ------ ------ --------------- ------
UK^ 9 15 24 6 14 20
North America 30 14 44 16 13 29
Gain on disposals of interests
in investments 86 - 86 65 - 65
---------------------------------------- ------ --------------- ------ ------ --------------- ------
125 29 154 87 27 114
Bidding costs and overheads (38) - (38) (25) - (25)
---------------------------------------- ------ --------------- ------ ------ --------------- ------
87 29 116 62 27 89
---------------------------------------- ------ --------------- ------ ------ --------------- ------
(+) The Group's share of the results of joint ventures and
associates is disclosed net of investment income, finance costs and
taxation.
(^) Including Singapore. The results for 2016 included
Australia.
(1) Before non-underlying items (Note 8).
6 Investment income
2017 2016
Continuing operations GBPm GBPm
---------------------------------------------- ----- -----
Subordinated debt interest receivable 26 29
Interest receivable on PPP financial assets 11 21
Gain on foreign currency deposits 1 19
Other interest receivable and similar income 4 6
---------------------------------------------- ----- -----
42 75
---------------------------------------------- ----- -----
7 Finance costs
2017 2016
Continuing operations GBPm GBPm
-------------------------------------------------------- ----- --------
Non-recourse borrowings - bank loans and overdrafts 13 24
Preference shares - finance cost 12 12
- accretion 3 2
Convertible bonds - finance cost 5 5
- accretion 7 7
US private placement - finance cost 13 13
Other interest payable - committed facilities 1 4
- letter of credit fees 4 3
- other finance charges 9 8
Net finance cost on pension scheme assets and
obligations (Note 17) 6 4
-------------------------------------------------------- ----- --------
73 82
-------------------------------------------------------- ----- --------
8 Non-underlying items
2017 2016
GBPm GBPm
---------------------------------------------------------------------------------------- ----- -----
Items (charged against)/credited to profit
8.1 Continuing operations
8.1.1 Trading results of Rail Germany (including
GBP2m (2016: GBP10m) of other net operating
expenses) - 1
8.1.2 Results of certain legacy ES contracts - (6)
8.1.3 Amortisation of acquired intangible assets (9) (9)
8.1.4 Other non-underlying items:
----- -----
- Build to Last transformation costs (12) (14)
- additional loss on the AWPR contract as a result of Carillion's liquidation (44) -
- loss on disposal/impairment of land of Blackpool Airport (1) (3)
- gain on disposal of Heery International Inc 18 -
- pension fund settlement gain - 1
- 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 disposal on Balfour Beatty Infrastructure Partners - 3
- gain on disposal of Signalling Solutions Ltd - 3
- gain on disposal of parts of Rail Germany - 2
Total other non-underlying items from continuing
operations (39) (39)
---------------------------------------------------------------------------------------- ----- -----
(48) (53)
Share of results of joint ventures and associates - release of Trans4m
8.1.5 provisions on liquidation - 1
Charged against profit before taxation from
continuing operations (48) (52)
8.1.6 Tax credits:
----- -----
- tax effect as a result of the reduction in US Federal corporate income
tax rate 32 -
- non-underlying recognition of deferred tax assets in the UK 34 -
- tax on other items above 2 4
----- -----
Total tax credit on continuing operations 68 4
---------------------------------------------------------------------------------------- ----- -----
Non-underlying items credited to/(charged against)
profit for the year from continuing operations 20 (48)
---------------------------------------------------------------------------------------- ----- -----
8.2 Discontinued operations
8.2.1 Other non-underlying items:
- gain on disposal of Dutco Balfour Beatty LLC & BK Gulf LLC 5 -
- gain on disposal of Parsons Brinckerhoff - 24
----- -----
Non-underlying items credited to profit/(loss)
for the year from discontinued operations 5 24
---------------------------------------------------------------------------------------- ----- -----
Credited to/(charged against) profit for the
year 25 (24)
---------------------------------------------------------------------------------------- ----- -----
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 2017, the
remaining parts of Rail Germany generated a GBPnil profit or loss
before tax (2016: GBP1m profit 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. Construction on
these contracts has now completed. These contracts resulted in a
GBPnil profit or loss to the Group in 2017 (2016: GBP6m loss).
8 Non-underlying items continued
Continuing operations
8.1.3 The amortisation of acquired intangible assets from
continuing operations comprises: customer contracts GBP6m (2016:
GBP6m) and customer relationships GBP3m (2016: GBP3m). 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 GBP4m (2016: GBP3m) and Infrastructure
Investments GBP5m (2016: 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 GBP12m were incurred in 2017
relating to: Construction Services GBP6m; Support Services GBP2m;
and Corporate GBP4m. These restructuring costs comprise: redundancy
costs GBP8m; property-related costs GBP3m; and other restructuring
costs GBP1m.
In 2016, the Group incurred restructuring costs of GBP14m
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.
8.1.4.2 On 15 January 2018, Carillion plc filed for compulsory
liquidation. Carillion was one of the Group's joint operations
partners in the Aberdeen Western Peripheral Route (AWPR) project on
a joint and several basis. As a result of Carillion's liquidation,
the Group and its remaining joint operations partner on the
project, Galliford Try plc, are jointly liable to deliver
Carillion's remaining obligations on this contract in addition to
each partner's existing 33% share.
In light of this, the Group has recognised a one-off
non-underlying loss provision of GBP44m which reflects the Group's
additional loss on the contract as a result of Carillion's
liquidation. The contract is expected to complete in the summer of
2018. This loss has been recognised in the Construction Services
segment.
8.1.4.3 On 12 September 2017, the Group disposed of its entire
interest in Regional & City Airports (Blackpool) Holdings Ltd
for a cash consideration of GBP4m. The disposal resulted in a GBP1m
loss being recognised as a non-underlying item. Refer to Note
20.2.2. In 2016, an impairment of GBP3m was recognised on land held
at Blackpool Airport. These losses have been included in the
Infrastructure Investments segment.
8.1.4.4 On 27 October 2017, the Group disposed of its 100%
interest in Heery International Inc. for a cash consideration of
GBP43m. The disposal resulted in a net gain of GBP18m being
recognised as a non-underlying item. Refer to Note 20.2.3. This
gain on disposal has been included in the Construction Services
segment.
8.1.4.5 In 2016, GBP1m was recognised in relation to pension
liability settlements by certain members of the Balfour Beatty
Pension Fund. This has been reported within Corporate
activities.
8.1.4.6 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
revised its legal provisioning levels relating to these items,
recognising an expense of GBP25m. This was 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 Non-underlying items continued
Continuing operations continued
8.1.4.7 In 2016, the Group released all remaining provisions
relating to Trans4m Ltd (Trans4m) amounting to GBP9m, GBP1m of
which was 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.
8.1.4.8 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 had increased its provision held with
respect to industrial disease related liabilities, resulting in a
GBP14m charge to the income statement. This was 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.
8.1.4.9 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.
8.1.4.10 In 2016, additional consideration relating to the
Group's disposal of its 50% interest in Signalling Solutions Ltd
(SSL) in 2015 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.
8.1.4.11 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. This sale resulted in a GBP2m gain as a
result of recycling of foreign currency reserves.
8.1.5 Refer to Note 8.1.4.7.
8.1.6.1 The US Government has reduced the Federal corporate
income tax rate from 35% to 21% with effect from 1 January 2018.
The net impacts of this change in 2017 were a non-underlying GBP32m
tax credit to the income statement and a GBP1m credit to
equity.
8.1.6.2 During the year significant actuarial gains in the
Group's main pension fund, Balfour Beatty Pension Fund (BBPF), led
to the recognition of a deferred tax liability. Refer to Note 17.
This in turn lead to the recognition of additional UK deferred tax
assets of GBP34m. Given the size and nature of the credit resulting
from the increase to actuarial gains in the BBPF, the credit has
been included as a non-underlying item.
8.1.6.3 The non-underlying items charged against Group operating
profit from continuing operations gave rise to a tax credit of
GBP2m comprising: GBP3m tax credit on amortisation of acquired
intangible assets; and GBP1m charge on the gain on disposal of
Heery (2016: 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).
8 Non-underlying items continued
Discontinued operations
8.2.1.1 On 1 March 2017, the Group disposed of its 49% interests
in Dutco Balfour Beatty LLC and BK Gulf LLC to its joint venture
partner for a total cash consideration of GBP11m, resulting in a
gain on disposal of GBP5m. Refer to Note 20.2.1.
8.2.1.2 Following the Group's disposal of Parsons Brinckerhoff
(PB) in 2015, the Group reached a settlement with the purchaser of
PB in relation to outstanding tax matters and indemnities in 2016.
The Group received an additional GBP9m as a result of this
settlement. At the same time, provisions in relation to these
matters were released, resulting in an overall gain to the Group of
GBP24m.
9 Income taxes
Non-underlying
Underlying items
(Note
Items(1) 8) Total Total
2017 2017 2017 2016
Continuing operations(x) GBPm GBPm GBPm GBPm
-------------------------------------- ------------ --------------- ------- -------
Total UK tax 2 (32) (30) 2
Total non-UK tax 21 (36) (15) 6
-------------------------------------- ------------ --------------- ------- -------
Total tax charge/(credit) 23 (68) (45) 8
-------------------------------------- ------------ --------------- ------- -------
UK current tax
- current tax on profits for
the year at 19.25% (2016: 20%) 2 2 4 (1)
- adjustments in respect of previous
periods (1) - (1) (6)
-------------------------------------- ------------ --------------- ------- -------
1 2 3 (7)
-------------------------------------- ------------ --------------- ------- -------
Non-UK current tax
- current tax on profits for
the year 6 (3) 3 3
- adjustments in respect of previous
periods (6) - (6) (10)
-------------------------------------- ------------ --------------- ------- -------
- (3) (3) (7)
-------------------------------------- ------------ --------------- ------- -------
Total current tax 1 (1) - (14)
-------------------------------------- ------------ --------------- ------- -------
UK deferred tax
- origination and reversal of
temporary differences 1 (37) (36) 9
- adjustments in respect of previous
periods - - - 3
- UK corporation tax rate change - 3 3 (3)
-------------------------------------- ------------ --------------- ------- -------
1 (34) (33) 9
-------------------------------------- ------------ --------------- ------- -------
Non-UK deferred tax
- origination and reversal of
temporary differences 19 (1) 18 8
- US Federal corporate income
tax rate change - (32) (32) -
- adjustments in respect of previous
periods 2 - 2 5
-------------------------------------- ------------ --------------- ------- -------
21 (33) (12) 13
-------------------------------------- ------------ --------------- ------- -------
Total deferred tax 22 (67) (45) 22
-------------------------------------- ------------ --------------- ------- -------
Total tax charge/(credit) from
continuing operations 23 (68) (45) 8
-------------------------------------- ------------ --------------- ------- -------
(x) Excluding joint ventures and associates.
(1) Before non-underlying items (Note 8).
The Group has recognised GBP68m of tax credits within
non-underlying in the year. Refer to Notes 8.1.6.1 to 8.1.6.3.
9 Income taxes continued
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 GBP50m is charged
(2016: GBP16m credited) directly to other comprehensive income,
comprising: a deferred tax charge of GBP37m for subsidiaries (2016:
GBP1m credit); and a deferred tax charge in respect of joint
ventures and associates of GBP13m (2016: GBP15m credit).
10 Earnings per ordinary share
2017 2016(2)
-------------- --------------
Basic Diluted Basic Diluted
Earnings GBPm GBPm GBPm GBPm
------------------------------------- ----- ------- ----- -------
Continuing operations
Earnings 162 162 2 2
Amortisation of acquired intangible
assets - net of tax credit of GBP3m
(2016: GBP3m) 6 6 6 6
Other non-underlying items - net of
tax credit of GBP65m (2016: GBP1m) (26) (26) 42 42
Underlying earnings 142 142 50 50
------------------------------------- ----- ------- ----- -------
Discontinued operations
Earnings 6 6 22 22
Other non-underlying items (5) (5) (24) (24)
------------------------------------- ----- ------- ----- -------
Underlying earnings/(loss) 1 1 (2) (2)
------------------------------------- ----- ------- ----- -------
Total operations
Earnings 168 168 24 24
Amortisation of acquired intangible
assets - net of tax credit of GBP3m
(2016: GBP3m) 6 6 6 6
Other non-underlying items - net of
tax credit of GBP65m (2016: GBP1m) (31) (31) 18 18
------------------------------------- ----- ------- ----- -------
Underlying earnings 143 143 48 48
------------------------------------- ----- ------- ----- -------
Basic Diluted Basic Diluted
m m m m
------------------------------------ ----- ------- ----- -------
Weighted average number of ordinary
shares 680 688 680 684
------------------------------------ ----- ------- ----- -------
Basic Diluted Basic Diluted
Earnings per share pence pence pence pence
---------------------------------------- ------ ------- ------ -------
Continuing operations
Earnings per ordinary share 23.7 23.4 0.2 0.2
Amortisation of acquired intangible
assets 0.8 0.8 0.9 0.9
Other non-underlying items (3.6) (3.5) 6.1 6.1
Underlying earnings per ordinary share 20.9 20.7 7.2 7.2
---------------------------------------- ------ ------- ------ -------
Discontinued operations
Earnings per ordinary share 1.0 1.0 3.3 3.3
Other non-underlying items (0.9) (0.9) (3.5) (3.5)
---------------------------------------- ------ ------- ------ -------
Underlying earnings/(loss) per ordinary
share 0.1 0.1 (0.2) (0.2)
---------------------------------------- ------ ------- ------ -------
Total operations
Earnings per ordinary share 24.7 24.4 3.5 3.5
Amortisation of acquired intangible
assets 0.8 0.8 0.9 0.9
Other non-underlying items (4.5) (4.4) 2.6 2.6
---------------------------------------- ------ ------- ------ -------
Underlying earnings per ordinary share 21.0 20.8 7.0 7.0
---------------------------------------- ------ ------- ------ -------
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
11 Dividends on ordinary shares
2017 2016
-------------- --------------
Per Per
share Amount share Amount
pence GBPm pence GBPm
---------------------------------- ------ ------ ------ ------
Proposed dividends for the year
Interim - current year 1.2 8 0.9 6
Final - current year 2.4 16 1.8 12
3.6 24 2.7 18
---------------------------------- ------ ------ ------ ------
Recognised dividends for the year
Final - prior year 12 -
Interim - current year 8 6
20 6
---------------------------------- ------ ------ ------ ------
The final 2016 dividend was paid on 7 July 2017 and the interim
2017 dividend was paid on 1 December 2017. Subject to approval at
the Annual General Meeting on 24 May 2018, the final 2017 dividend
will be paid on 6 July 2018 to holders on the register on 20 April
2018 by direct credit or, where no mandate has been given, by
cheque posted on 6 July 2018 payable on 5 July 2018. The ordinary
shares will be quoted ex-dividend on 19 April 2018.
12 Intangible assets - goodwill
Accumulated
impairment Carrying
Cost losses amount
GBPm GBPm GBPm
------------------------------------ ----- ----------- --------
At 1 January 2017 1,110 (173) 937
Currency translation differences (48) 2 (46)
Disposal of Blackpool Airport (4) 4 -
Disposal of Heery International Inc (21) 4 (17)
At 31 December 2017 1,037 (163) 874
------------------------------------ ----- ----------- --------
2017 2016
----------------- -----------------
Pre-tax Pre-tax
discount discount
Carrying amounts of goodwill by rate rate
cash-generating unit GBPm % GBPm %
-------------------------------------- ----- ---------- ----- ----------
UK Regional and Engineering Services 248 10.3 248 10.2
Balfour Beatty Construction Group
Inc. 413 11.0 452 12.6
Rail UK 68 10.4 68 10.4
Gas & Water 58 10.4 58 10.2
Balfour Beatty Communities US 49 11.0 54 12.6
Other 38 10.2-11.0 57 10.2-12.8
-------------------------------------- ----- ---------- ----- ----------
Group total 874 937
-------------------------------------- ----- ---------- ----- ----------
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 2018 to 2020 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.
Whilst it is anticipated that growth will remain stable in the
UK buildings sector, tender margins will improve as there will be
an increased selectivity to drive a higher quality project
portfolio. The Group is well positioned in the UK infrastructure
market for major schemes and regulatory spending uplift. It is
anticipated that the US construction market will continue to
improve, as will tender margins which will also be driven by
increased selectivity of projects. In the Support Services segment,
market conditions are anticipated to be stable in the UK. The
Support Services business has a portfolio of long-term contracts
and has secured the majority of its workload for the forecast
period.
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.
2017 2016
--------------------------------- ---------------------------------
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 2.1 0.1 2.2 1.8 1.1 2.9
Balfour Beatty Construction
Group Inc. 2.0 1.4 3.4 1.9 1.5 3.4
Rail UK 2.1 0.1 2.2 1.8 1.1 2.9
Gas & Water 2.1 0.1 2.2 1.8 1.1 2.9
Balfour Beatty Communities
US 1.9 0.1 2.0 1.9 1.5 3.4
Other 2.1 0.2 2.3 1.9 1.4 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,
and for certain CGUs, changes to underlying cash projections. In
particular, a reduction of 150 basis points in margin within the
Gas & Water CGU would reduce its headroom to GBPnil.
Except as noted above, a reasonable possible change in key
assumptions would not give rise to an impairment in any of the
Group's CGUs.
The Group continues to consider whether a reasonable possible
change in assumptions within the construction business in light of
its historical losses would lead to an impairment of the goodwill
in the related CGUs and concluded that it is not the case. The
Group maintains that the stabilisation and recovery of the Group's
UK Construction business to more normal levels of performance is
still 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 2017 495 (270) 225
Currency translation differences (26) 17 (9)
Additions 87 - 87
Removal of fully amortised intangible asset (1) 1 -
Charge for the year - (22) (22)
At 31 December 2017 555 (274) 281
-------------------------------------------- ----- ------------- -------------
Other intangible assets comprise: acquired intangible assets of
customer contracts, customer relationships, and brand names;
Infrastructure Investments' intangible assets on student
accommodation projects in which the Group bears demand risk; and
software and other.
14 Joint ventures and associates
2017
-------------------------------------------------------------
Infrastructure
Investments
---------------------------
Construction Support North
Services Services UK^ America Total Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ------------ --------- ------- --------- ------- -------
Income statement - continuing
operations
Revenue(1) 1,074 30 173 63 236 1,340
------------------------------- ------------ --------- ------- --------- ------- -------
Underlying operating profit(1) 32 - 5 15 20 52
Investment income 3 - 127 9 136 139
Finance costs (2) - (114) (10) (124) (126)
------------------------------- ------------ --------- ------- --------- ------- -------
Profit before taxation(1) 33 - 18 14 32 65
Taxation (3) - (3) - (3) (6)
------------------------------- ------------ --------- ------- --------- ------- -------
Profit after taxation 30 - 15 14 29 59
------------------------------- ------------ --------- ------- --------- ------- -------
Balance sheet
Non-current assets
Intangible assets:
- goodwill 32 - - - - 32
- Infrastructure Investments
intangible - - 23 - 23 23
- other 3 - 12 - 12 15
Property, plant and equipment 25 - 38 3 41 66
Investment properties - - - 72 72 72
Investments in joint ventures
and associates 7 - - - - 7
PPP financial assets - - 1,659 184 1,843 1,843
Military housing projects - - - 112 112 112
Other non-current assets 53 - 17 - 17 70
Current assets
Cash and cash equivalents 329 - 156 19 175 504
Other current assets 206 - 53 3 56 262
------------------------------- ------------ --------- ------- --------- ------- -------
Total assets 655 - 1,958 393 2,351 3,006
------------------------------- ------------ --------- ------- --------- ------- -------
Current liabilities
Borrowings - non-recourse (32) - (41) - (41) (73)
Other current liabilities (456) (1) (141) (11) (152) (609)
Non-current liabilities
Borrowings - non-recourse - - (1,331) (222) (1,553) (1,553)
Other non-current liabilities (52) - (355) - (355) (407)
------------------------------- ------------ --------- ------- --------- ------- -------
Total liabilities (540) (1) (1,868) (233) (2,101) (2,642)
------------------------------- ------------ --------- ------- --------- ------- -------
Net assets 115 (1) 90 160 250 364
Loans to joint ventures
and associates - 4 163 - 163 167
------------------------------- ------------ --------- ------- --------- ------- -------
Total investment in joint
ventures and associates 115 3 253 160 413 531
------------------------------- ------------ --------- ------- --------- ------- -------
^ Including Singapore.
(1) Before non-underlying items (Note 8).
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.
14 Joint ventures and associates continued
2016
------------------------------------------------------------------
Infrastructure
Investments
---------------------------
Construction Support North
Services(2,+) Services UK^ America Total Total(2)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- -------------- --------- ------- --------- ------- ----------
Income statement - continuing
operations(2)
Revenue(1) 1,066 27 220 120 340 1,433
------------------------------- -------------- --------- ------- --------- ------- ----------
Underlying operating profit(1) 31 1 6 15 21 53
Investment income 2 - 126 7 133 135
Finance costs (1) - (114) (9) (123) (124)
------------------------------- -------------- --------- ------- --------- ------- ----------
Profit before taxation(1) 32 1 18 13 31 64
Taxation (3) - (4) - (4) (7)
------------------------------- -------------- --------- ------- --------- ------- ----------
Profit after taxation before
non-underlying items 29 1 14 13 27 57
Share of results within
non-underlying items 1 - - - - 1
------------------------------- -------------- --------- ------- --------- ------- ----------
Profit after taxation 30 1 14 13 27 58
------------------------------- -------------- --------- ------- --------- ------- ----------
Balance sheet
Non-current assets
Intangible assets:
- goodwill 35 - - - - 35
- Infrastructure Investments
intangible - - 19 - 19 19
- other 3 - 12 - 12 15
Property, plant and equipment 29 - 33 - 33 62
Investment properties - - - 61 61 61
Investments in joint ventures
and associates 4 - - - - 4
PPP financial assets - - 1,941 188 2,129 2,129
Military housing projects - - - 121 121 121
Other non-current assets 44 - 24 - 24 68
Current assets
Cash and cash equivalents 392 - 203 35 238 630
Other current assets 272 - 69 2 71 343
------------------------------- -------------- --------- ------- --------- ------- ----------
Total assets 779 - 2,301 407 2,708 3,487
------------------------------- -------------- --------- ------- --------- ------- ----------
Current liabilities
Borrowings - non-recourse (51) - (23) - (23) (74)
Other current liabilities (527) - (148) (39) (187) (714)
Non-current liabilities
Borrowings - non-recourse - - (1,520) (217) (1,737) (1,737)
Other non-current liabilities (57) - (474) (5) (479) (536)
------------------------------- -------------- --------- ------- --------- ------- ----------
Total liabilities (635) - (2,165) (261) (2,426) (3,061)
------------------------------- -------------- --------- ------- --------- ------- ----------
Net assets 144 - 136 146 282 426
Loans to joint ventures
and associates - 4 198 - 198 202
------------------------------- -------------- --------- ------- --------- ------- ----------
Total investment in joint
ventures and associates 144 4 334 146 480 628
------------------------------- -------------- --------- ------- --------- ------- ----------
^ Including Singapore. The results for 2016 included
Australia.
(+) Excludes the Group's share of the balance sheets of Dutco
Balfour Beatty LLC and BK Gulf LLC as this is presented within
provisions.
(1) Before non-underlying items (Note 8).
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
15 Trade and other receivables
2017 2016
GBPm GBPm
----------------------------------------------------- ------ ------
Current
Trade receivables 536 653
Less: provision for impairment of trade receivables (7) (7)
----------------------------------------------------- ------ ------
529 646
Due from joint ventures and associates 23 58
Due from joint operation partners 25 7
Contract retentions receivable(+) 185 242
Accrued income 18 17
Prepayments 35 36
Due on disposals 63 -
Other receivables 21 60
899 1,066
----------------------------------------------------- ------ ------
Non-current
Due from joint ventures and associates 38 25
Contract retentions receivable(+) 173 151
Due on disposals 4 -
Other receivables 1 4
216 180
----------------------------------------------------- ------ ------
Total trade and other receivables 1,115 1,246
----------------------------------------------------- ------ ------
(+) Including GBP352m (2016: GBP390m) construction contract
retentions receivable.
16 Trade and other payables
2017 2016
GBPm GBPm
---------------------------------------- ------ ------
Current
Trade and other payables(+) 833 936
Accruals 604 701
Deferred income 1 15
VAT, payroll taxes and social security 68 73
Advance payments on contracts 16 4
Due to joint ventures and associates 11 11
Dividends on preference shares 6 6
Due on acquisitions 3 3
Due on disposals (Note 20.2.8) - 3
---------------------------------------- ------ ------
1,542 1,752
---------------------------------------- ------ ------
Non-current
Trade and other payables 120 110
Accruals 19 20
Due to joint ventures and associates 7 7
Due on acquisitions 11 14
---------------------------------------- ------ ------
157 151
---------------------------------------- ------ ------
Total trade and other payables 1,699 1,903
---------------------------------------- ------ ------
(+) Included within the Group's trade and other payables balance
is GBP0.2m (2016: GBP2.6m) relating to payments due to suppliers
who are on supply chain finance arrangements. The Group settles
these amounts in accordance with standard supplier payment terms,
normally 30 days.
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 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.
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 surplus
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. In 2017, the BBPF received
distributions of GBP1m from the SLP (2016: 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 and a further GBP5m in 2017.
Following this, GBP7m will be 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 made ongoing deficit
payments in addition to those set out above of GBP22m in 2017. The
Group will make further contributions of GBP18m per annum from
January 2018, GBP19m per annum from January 2019 and GBP11m in
2020.
If the dividend cover ratio is below an agreed trigger level
then the contributions set out above may need to be
accelerated.
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.
17 Retirement benefit liabilities continued
Principal actuarial assumptions for the IAS 19 accounting
valuations of the Group's principal schemes
2017 2016
------------------ ------------------
Balfour Balfour
Beatty Railways Beatty Railways
Pension Pension Pension Pension
Fund Scheme Fund Scheme
% % % %
------------------------------------------- -------- -------- -------- --------
Discount rate 2.55 2.55 2.50 2.50
Inflation
rate - RPI 3.15 3.15 3.20 3.20
- CPI 2.05 2.05 2.00 2.00
Future increases in pensionable salary 2.05 2.05 2.00 2.00
Rate of increase in pensions in payment
(or such other rate as is guaranteed) 2.95 2.20 2.95 2.15
------------------------------------------- -------- -------- -------- --------
Number Number Number Number
------------------------------------------- -------- -------- -------- --------
Total number of defined benefit members 29,949 3,036 31,032 3,077
------------------------------------------- -------- -------- -------- --------
In December 2017, the Group changed two elements of the discount
rate methodology which resulted in a discount rate of 2.55% in the
current year compared to 2.35% under the previous methodology. The
first change was to exclude certain bonds issued by Universities
and entities with a UK Government guarantee, which the Group did
not consider to meet the high-quality corporate bond requirement of
IAS 19. The second change, and noting IAS 19 does not specify the
approach that should be adopted where there are no corporate bonds
of a suitable duration, was to change from extrapolating the
discount rate yield curve with reference to UK Government gilts to
using the forward rates observable from relevant corporate bonds.
In the Group's view, these changes resulted in a high-quality
corporate bond based discount rate yield curve which is more
appropriate for the profile of the Group's UK pension obligations.
The impact of these changes in discount rate methodology is a
GBP123m gain which was recognised as part of the actuarial
gains/(losses) for the year within the Statement of Comprehensive
Income. The Group accounted for the discount rate change
prospectively as a change in estimate.
At the same time, following independent advice from the Group's
actuaries, the Group reassessed the difference between RPI and CPI
measures of price inflation from 1.2% at December 2016 to 1.1% at
December 2017. This resulted in an actuarial loss of GBP25m, which
was recognised as part of the actuarial gains/(losses) for the year
within 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 (43,483 members at 31
December 2017) 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 2017
have been updated to reflect the experience of Balfour Beatty
pensioners for the period 1 April 2016 to 31 March 2017. The
mortality tables adopted for the 2017 IAS 19 valuations are the
Self-Administered Pension Scheme (SAPS) S2 tables (2016: SAPS S2
tables) with a multiplier of 102% for all male and female members
(2016: 102%) and 106% for female widows and dependants (2016:
106%); all with future improvements in line with the CMI 2016 core
projection model (2016: 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 (2016: 1.25% per annum and 1.00%
per annum).
2017 2016
------------------- -------------------
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 21.9 23.6 22.1 23.9
Members not yet in receipt of a pension (current age 50) 23.0 24.6 23.4 25.0
17 Retirement benefit liabilities continued
Amounts recognised in the Balance Sheet
2017 2016
Balfour Balfour
Beatty Railways Beatty Railways
Pension Pension Pension Pension
Fund Scheme Other schemes^ Total Fund Scheme Other schemes^ Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------- -------- ------- -------- -------
Present value of
obligations (3,512) (391) (53) (3,956) (3,683) (416) (56) (4,155)
Fair value of plan
assets 3,668 320 - 3,988 3,621 303 - 3,924
-------- ------- -------- -------
Assets/(liabilities) in
the balance sheet 156 (71) (53) 32 (62) (113) (56) (231)
-------- ------- -------- -------
^ Available-for-sale investments in mutual funds of GBP22m
(2016: GBP23m) are held to satisfy the Group's deferred
compensation obligations.
The defined benefit obligation comprises GBP53m (2016: GBP56m)
arising from wholly unfunded plans and GBP3,903m (2016: GBP4,099m)
arising from plans that are wholly or partly funded.
2017
Movements in the retirement benefit liabilities for the year GBPm
-----
At 1 January 2017 (231)
Currency translation differences 2
Current service cost (6)
Interest cost (102)
Interest income 96
Actuarial movements - on obligations from changes in discount rate methodology 123
- on obligations from reassessing the difference between RPI and CPI (25)
- on obligations from changes to other financial assumptions (69)
- on obligations from changes in demographic assumptions 44
- on obligations from experience gains 21
- on assets 148
Contributions from employer - regular funding 2
- ongoing deficit funding 25
Benefits paid 4
At 31 December 2017 32
Sensitivity of the Group's retirement benefit obligations at 31
December 2017 to different actuarial assumptions
(Decrease)/ (Decrease)/
increase in increase in
Percentage obligations obligations
points/years % GBPm
Increase in discount rate 0.5% (8.1)% (314)
Increase in market expectation of RPI inflation 0.5% 5.7% 223
Increase in salary growth 0.5% 0.0% 1
Increase in life expectancy 1 year 4.1% 164
Sensitivity of the Group's retirement benefit assets at 31
December 2017 to changes in market conditions
(Decrease)/ (Decrease)/
increase in increase in
Percentage assets assets
points % GBPm
Increase in interest rates 0.5% (8.5)% (335)
Increase in market expectation of RPI inflation 0.5% 5.7% 223
The BBPF includes a defined contribution section with 13,534
members at 31 December 2017 (2016: 13,290 members) with GBP43m
(2016: GBP44m) 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 GBP52m (2016: GBP48m).
18 Share capital
During the year ended 31 December 2017, 0.6m (2016: 1.6m)
ordinary shares were purchased for GBP1.7m (2016: GBP3.9m) 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 items(1) (Note 8) Discontinued Total Total
2017 2017 operations 2017 2017 2016
19.1 Cash generated from/(used in) operations GBPm GBPm GBPm GBPm GBPm
Profit/(loss) from operations 196 (48) 6 154 39
Share of results of joint ventures
and associates (59) - (1) (60) (56)
Depreciation of property, plant
and equipment 28 - - 28 30
Depreciation of investment properties 1 - - 1 -
Amortisation of other intangible
assets 13 9 - 22 21
Impairment of IT intangible assets - - - - 1
Pension deficit payments (25) - - (25) (41)
Pension fund settlement gain - - - - (1)
Movements relating to share-based
payments 9 - - 9 7
Profit on disposal of investments
in infrastructure concessions (86) - - (86) (65)
Net gain on disposal of other
businesses - (17) (5) (22) (32)
Profit on disposal of property,
plant and equipment (6) - - (6) (5)
Impairment of land relating to
Blackpool Airport - - - - 3
Other non-cash items (2) 1 - (1) -
Operating cash flows before movements in
working capital 69 (55) - 14 (99)
(Increase)/decrease in operating
working capital (7) 34 - 27 (48)
Inventories and non-construction work in
progress (12) - - (12) 42
Due from construction contract customers (17) 3 - (14) (5)
Trade and other receivables 63 32 - 95 (134)
Due to construction contract customers (1) 22 - 21 41
Trade and other payables (65) (27) - (92) (60)
Provisions 25 4 - 29 68
Cash generated from/(used in)
operations 62 (21) - 41 (147)
----------------------------------------------
(1) Before non-underlying items (Note 8).
2017 2016
19.2 Cash and cash equivalents GBPm GBPm
----- -----
Cash and deposits 717 605
Term deposits 116 157
Cash balances within infrastructure concessions 135 7
Bank overdrafts - (1)
----- -----
968 768
----- -----
19 Notes to the statement of cash flows continued
2017 2016
19.3 Analysis of net cash/(borrowings) GBPm GBPm
-----
Cash and cash equivalents, excluding overdrafts and cash balances within infrastructure concessions 833 762
Bank overdrafts - (1)
US private placement (259) (285)
Liability component of convertible bonds (226) (240)
Loans under committed facilities - (50)
Other loans (13) (12)
Finance leases - (1)
335 173
Non-recourse infrastructure concessions project finance loans at amortised cost with final
maturity between 2019 and 2062 (440) (240)
Infrastructure concessions cash and cash equivalents 135 7
-----
(305) (233)
-----
Net cash/(borrowings) 30 (60)
-----
2017
Infrastructure
concessions
19.4 Analysis of non-recourse Loans under committed
movement in project finance US private placement Convertible bonds facilities Other Total
borrowings GBPm GBPm GBPm GBPm GBPm GBPm
------
At 1 January 2017 (240) (285) (240) (50) (14) (829)
Currency translation
differences 4 26 - - - 30
Accretion on
convertible bonds - - (7) - - (7)
Proceeds from new
loans (212) - - - - (212)
Repayments of loans 4 - 21 50 2 77
Amortisation of
arrangement fees - - - - (1) (1)
Fair value adjustment
on loan attributable
to minority interest 4 - - - - 4
At 31 December 2017 (440) (259) (226) - (13) (938)
2016
Infrastructure
concessions
non-recourse Loans under committed
project finance US private placement Convertible bonds facilities Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
------
At 1 January 2016 (385) (236) (233) - (14) (868)
Currency translation
differences (6) (49) - - 1 (54)
Accretion on
convertible bonds - - (7) - - (7)
Proceeds from new
loans (65) - - (50) (2) (117)
Repayments of loans 25 - - - 1 26
Disposal of
non-recourse
borrowings 191 - - - - 191
At 31 December 2016 (240) (285) (240) (50) (14) (829)
During the year ended 31 December 2017, the main movement in
borrowings within the infrastructure concessions non-recourse
project finance was an increase in new loans of GBP212m (2016:
GBP65m) relating primarily to the development of student
accommodation at the University of Sussex, which has been accounted
for as an IFRIC 12 intangible. Within the recourse element of the
Group's borrowings, GBP21m of convertible bonds have been
repurchased by the Group and GBP50m of the drawn committed facility
has been repaid in the year. The Group's entire revolving credit
facility of GBP400m was undrawn at 31 December 2017.
20 Acquisitions and disposals
20.1 Current and prior year acquisitions
There were no material acquisitions in 2017.
Deferred consideration paid during 2017 in respect of
acquisitions completed in earlier years was GBP3m (2016: GBP3m).
This related to the Group's acquisition of Centex Construction in
2007.
20.2 Current year disposals
Direct
costs
incurred,
indemnity
provisions
Amount created
Net recycled and Non-
Percentage Cash assets from fair value Underlying underlying
Disposal disposed consideration disposed reserves uplift gain gain/(loss)
Notes date Entity/business % GBPm GBPm GBPm GBPm GBPm GBPm
Dutco Balfour
1 March Beatty LLC & BK
20.2.1 2017 Gulf LLC^ 49% 11(#) (6)(+) - - - 5
Regional & City
12 Airports
September (Blackpool)
20.2.2 2017 Holdings Ltd* 100% 4 (5) - - - (1)
Heery
27 October International
20.2.3 2017 Inc* 100% 43 (21) 6 (10) - 18
21 & 29 Connect Plus
December (M25) Holdings
20.2.4 2017 Ltd^ 20% 165(--) (164)(&) 85 - 86 -
223 (196) 91 (10) 86 22
* Subsidiary.
^ Joint venture.
(+) Net assets disposed include loan receivables due to Balfour
Beatty plc from BK Gulf LLC of GBP17m which were settled as part of
the disposal.
(#) Cash consideration above reflects elements which have been
deferred and therefore discounted at year end. These amount to
GBP5m and have been included in due on disposals within trade and
other receivables. Refer to Note 15.
-- Of this amount, GBP103m was received in 2017. The remaining
GBP62m has been included in due on disposals within trade and other
receivables and was subsequently received on 23 February 2018.
(&) Net assets disposed include GBP6m of subordinated debt
receivable which was settled as part of the disposal. The balance
also includes GBP2m of excess bid costs recovered which were
released and credited to the gain on disposal.
20.2.1 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,
an element of which was deferred. The sale subsequently completed
on 1 March 2017. The Group's share of results in these entities is
presented as part of its discontinued operations with comparatives
restated accordingly. The GBP5m gain on the disposal is presented
as non-underlying within discontinued operations.
20.2.2 On 12 September 2017, the Group disposed of its entire
100% interest in Regional & City Airports (Blackpool) Holdings
Ltd for a cash consideration of GBP4m. The disposal resulted in a
GBP1m loss being recognised as a non-underlying item within
continuing operations.
20.2.3 On 27 October 2017, the Group disposed of its 100%
interest in Heery International Inc. for a cash consideration of
GBP43m. The disposal resulted in a net gain of GBP18m being
recognised as a non-underlying item within continuing operations,
comprising a gain of GBP12m in respect of net assets disposed
(after direct costs and indemnity provisions incurred of GBP10m)
and a gain of GBP6m in respect of cumulative foreign exchange
reserves recycled to the income statement. The disposal included
cash disposed of GBP5m.
20.2 Current year disposals continued
20.2.4 On 21 December 2017, the Group disposed of a 12.5%
interest in Connect Plus (M25) Holdings Ltd to Dalmore for a cash
consideration of GBP103m. Subsequently on 29 December 2017, the
Group disposed of a further 7.5% interest in the joint venture for
a cash consideration of GBP62m. On this date, the Group ceased to
jointly control this 7.5% interest as Equitix had the right to
acquire this stake for a cash consideration of GBP62m which was
exercisable up until 13 March 2018. At the same time, the Group had
an unconditional right to sell the stake to Dalmore for an
identical price if Equitix failed to exercise its right to acquire.
The completion of this portion of the disposal was ongoing at the
balance sheet date and therefore the consideration of GBP62m has
been included in trade and other receivables as amounts due on
disposals. Refer to Note 15. This consideration was subsequently
received on 23 February 2018 following completion of the disposal
to Equitix. Refer to Note 24.
These disposals resulted in a net gain of GBP86m comprising a
gain of GBP1m in respect of the Group's investment in the joint
venture and a gain of GBP85m in respect of revaluation reserves
recycled to the income statement on disposal.
20.2.5 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 was recognised as a disposal in 2016 as completion of
the sale was not subject to any substantive terms at 31 December
2016. The Group subsequently completed the disposal in March 2017.
A payment of GBP3m was made by the Group to the purchaser following
the completion of this disposal.
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
Joint ventures and associates
The Group has contracted with, provided services to, and
received management fees from, certain joint ventures and
associates amounting to GBP279m (2016: GBP344m). 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.
Transactions with non-Group members
The Group also entered into transactions and had amounts
outstanding with related parties which are not members of the Group
as set out below. These companies were related parties as they are
controlled or jointly controlled by a non-executive director of
Balfour Beatty plc.
22 Related party transactions continued
Transactions with non-Group members continued
2017 2016
GBPm GBPm
Anglian Water Group Ltd
Sale of goods & services 18 13
Amounts owed by related parties 3 -
URENCO Ltd
Sale of goods & services 72 62
Amounts owed by related parties - 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 2016.
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 15 January 2018, Carillion plc filed for compulsory
liquidation. Carillion was one of the Group's joint operations
partners in the Aberdeen Western Peripheral Route (AWPR) project on
a joint and several basis. As a result of Carillion's liquidation,
the Group and its remaining joint operations partner on the
project, Galliford Try plc, are jointly liable to deliver
Carillion's remaining obligations on this contract in addition to
each partner's existing 33% share. The Group has assessed the
liquidation of Carillion plc as an adjusting post balance sheet
event and in light of this, the Group has recognised a one-off
non-underlying loss provision of GBP44m in 2017, which reflects the
Group's additional loss on the contract as a result of Carillion's
liquidation. The contract is expected to complete in the summer of
2018. Refer to Note 8.
On 14 February 2018, the Group repurchased a further GBP17.7m of
its convertible bonds, which will result in a loss on settlement of
GBP0.3m. This settlement will also trigger a further GBP2m of
reserves relating to the equity component of the repurchased bonds
being transferred from other reserves into retained earnings.
Following this settlement, the Group's outstanding liability
component of the bonds on maturity in December 2018 amounts to
GBP213.7m.
24 Events after the reporting date continued
On 19 February 2018, the Group agreed the disposal of a further
5% interest in Connect Plus (M25) Holdings Ltd to Equitix for a
cash consideration of GBP42m, equivalent to the price of the 20%
disposal in 2017. The expected profit on disposal for this
transaction is GBP21m. On 23 February 2018, the Group completed
this transaction and received from Equitix the full cash
consideration of GBP104m, inclusive of the GBP62m outstanding at
the reporting date as detailed in Note 20.2.4. The Group continues
to own a 15% interest in Connect Plus (M25) Holdings Ltd.
On 7 March 2018, the Group repaid the first tranche of its US
Private Placement notes amounting to US$45m (GBP32.5m). US$305m
remain outstanding, with the next tranche of US$46m being due in
March 2020 and the remaining loan notes falling due in March 2023
and March 2025.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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