REG - Balfour Beatty PLC - Balfour Beatty 2016 Full Year Results <Origin Href="QuoteRef">BALF.L</Origin> - Part 4
16/03/2017 07:06
- Part 4: For the preceding part double click ID:nRSP6150Zc
Bidding costs and overheads (25) - (25) (24) - (24)
62 27 89 91 41 132
+ The Group's share of the results of joint ventures and associates is disclosed net of investment income, finance costs
and taxation.
^ Including Singapore and Australia.
1 Before non-underlying items (Note 8).
6 Investment income
Continuing operations 2016£m 2015£m
Subordinated debt interest receivable 29 24
Interest receivable on PPP financial assets 21 24
Gain on foreign currency deposits 19 -
Other interest receivable and similar income 6 4
75 52
7 Finance costs
Continuing operations 2016£m 2015 £m
Non-recourse borrowings - bank loans and overdrafts 24 19
Preference shares - finance cost 12 11
- accretion 2 2
Convertible bonds - finance cost 5 5
- accretion 7 6
US private placement - finance cost 13 11
Other interest payable - committed facilities 4 5
- letter of credit fees 3 3
- other finance charges 8 4
Net finance cost on pension scheme assets and obligations (Note 17) 4 3
82 69
8 Non-underlying items
2016£m 2015£m
Items (charged against)/credited to profit
8.1Continuing operations
8.1.1 Trading results of Rail Germany (including £10m (2015: £13m) of other net operating expenses) 1 (3)
8.1.2 Results of certain legacy ES contracts (6) (8)
8.1.3 Amortisation of acquired intangible assets (9) (10)
8.1.4 Other non-underlying items:
- Build to Last transformation costs (14) (23)
- provision increases resulting from revised legal guidelines and settlements (25) -
- release of Trans4m provisions on liquidation 8 -
- provision increases resulting from reassessment of industrial disease related liabilities (14) -
- gain on sale of Balfour Beatty Infrastructure Partners 3 -
- impairment of land/goodwill relating to Blackpool Airport (3) (4)
- gain on disposal of Signalling Solutions Ltd 3 16
- gain/(loss) on disposal and impairment of parts of Rail Germany 2 (10)
- pension fund settlement gain 1 3
- restructuring costs relating to Heery and Rail Germany - (9)
- cost of implementing the shared service centre in the UK - (8)
-impairment of IT intangible asset - (17)
Total other non-underlying items from continuing operations (39) (52)
(53) (73)
8.1.5 Share of results of joint ventures and associates:
- release of Trans4m provisions on liquidation 1 -
- Rail Germany - (3)
Non-underlying items credited/(charged) to share of results of joint ventures and associates 1 (3)
Charged against profit/(loss) before taxation from continuing operations (52) (76)
8.1.6 Tax on items above 4 4
Non-underlying items charged against profit/(loss) for the year from continuing operations (48) (72)
8.2 Discontinued operations
8.2.1 Other non-underlying items:
- gain on disposal of Parsons Brinckerhoff 24 5
- loss on disposal of Rail Italy - (4)
Credited to profit/(loss) before taxation from discontinued operations 24 1
8.2.2 Tax on items above - -
Non-underlying items credited to profit/(loss) for the year from discontinued operations 24 1
Charged against profit/(loss) for the year (24) (71)
8 Non-underlying items continued
Continuing operations
8.1.1 Rail Germany was reclassified from discontinued operations in 2014 and has continued to be presented as part of the
Group's non-underlying items within continuing operations. In 2016, the remaining parts of Rail Germany generated a profit
before tax excluding share of joint ventures and associates of £1m (2015: £3m loss before tax).
8.1.2 The Group has continued to present the results of certain external legacy Engineering Services (ES) contracts in
non-underlying items. These contracts were classified as non-underlying items in 2014 as the performance of these contracts
was linked to poor legacy management and in regions where ES has withdrawn from tendering for third-party work. These
contracts resulted in a loss before tax for the Group of £6m in 2016 (2015: £8m). No tax credit has been recognised on this
loss.
8.1.3 The amortisation of acquired intangible assets from continuing operations comprises: customer contracts £6m (2015:
£6m); customer relationships £3m (2015: £3m); and brand names £nil (2015: £1m). 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 £3m (2015: £4m) and Infrastructure Investments
£6m (2015: £6m).
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 £14m were incurred in 2016 relating to: Construction Services £12m; Support
Services £1m; and Corporate £1m. These restructuring costs comprise: redundancy costs £9m; external advisers £2m;
property-related costs £1m; and other restructuring costs £2m.
In 2015, the Group incurred restructuring costs of £23m relating to: Construction Services £14m; Support Services £6m; and
Corporate £3m. These restructuring costs comprise: redundancy costs £13m; external advisers £5m; property-related costs
£1m; and other restructuring costs £4m.
8.1.4.2 In 2016, potential liabilities on historical health and safety breaches were reassessed following new sentencing
guidelines introduced and the settlement of other historical claims previously treated as non-underlying items. As a result
of this, the Group has revised its legal provisioning levels relating to these items, recognising an expense of £25m. This
has been presented as non-underlying because its size would otherwise distort the underlying financial performance achieved
by the Group and the events giving rise to these expenses occurred in prior years.
The charge was recognised in the following segments: Construction Services £13m and Support Services £12m.
8.1.4.3 In 2016, the Group has released all remaining provisions relating to Trans4m Ltd (Trans4m) amounting to £9m, £1m of
which has been recognised at the joint venture level. Trans4m was an equal joint operation between Balfour Beatty and three
other partner shareholders and was contracted to Metronet as part of the London Underground PPP. The provisions were
originally recorded in non-underlying items in 2007. Trans4m went into creditors' voluntary liquidation on 27 June 2016.
The credit was recognised in the following segments: Construction Services £8m and Support Services £1m.
8 Non-underlying items continued
Continuing operations continued
8.1.4.4 In 2016, the Group commissioned a revised independent actuarial report on its exposure to industrial disease
related liabilities. These are mostly for asbestos-related claims in relation to events pre-1972 which are not insured by
the Financial Services Compensation Scheme. As a result of the findings within this report, the Group has increased its
provision held with respect to industrial disease related liabilities, resulting in a £14m charge to the income statement.
This has been presented as non-underlying because its size would otherwise distort the underlying financial performance
achieved by the Group and the events giving rise to these liabilities occurred in prior years.
The entire charge was recognised within Construction Services.
8.1.4.5 In 2016, the Group disposed of its interest in Balfour Beatty Infrastructure Partners, comprising its 17.8%
interest in the Infrastructure Fund and 100% interest in the fund's advisor. Initial consideration of £48m was received,
resulting in a gain of £3m to the Group. Refer to Notes 20.2.4 and 20.2.5.
8.1.4.6 In 2016, an impairment of £3m was recognised on land held at Blackpool Airport. The land was originally held in
connection with the Group's former operation of the airport. In 2015, goodwill amounting to £4m in relation to Blackpool
Airport was fully written down.
8.1.4.7 On 27 May 2015, the Group disposed of its 50% interest in Signalling Solutions Ltd (SSL) for a cash consideration
of £18m, resulting in a £16m gain in 2015. In 2016, additional consideration received resulted in a further gain of £2m
being reported. In addition to this, a £1m pension settlement gain arose as a result of transferring pension liabilities
relating to the employees of SSL to the new employer. This gain was recognised within Construction Services.
8.1.4.8 In September 2016, the Group completed the disposal of parts of Rail Germany to Tianjin Keyvia Electric Co Ltd for
a cash consideration of £15m. Refer to Note 20.2.7. This sale resulted in £2m gain as a result of recycling of foreign
currency reserves. The related assets disposed were impaired by £11m in 2015 to reflect the value of the agreed
consideration. £4m of that impairment was recognised at the joint venture level. Refer to Note 8.1.5.2.
In 2015, the Group disposed of other parts of Rail Germany to the Rhomberg Sersa Rail Group for a cash consideration of £9m
resulting in a £3m loss in 2015.
8.1.4.9 A settlement gain of £1m (2015: £3m) was recognised in relation to commutation options offered by the Balfour
Beatty Pension Fund since 2014. Refer to Note 17.
8.1.4.10 In 2015, following the disposal of Parsons Brinckerhoff (PB) on 31 October 2014, the Group incurred £4m of costs
relating to restructuring the continuing operations of Heery Inc. which was previously reliant on PB for its back office
functions.
In 2015, additional restructuring costs of £5m were incurred in Rail Germany relating to the restructuring of overheads
post completion of disposal of parts of the business. These restructuring costs comprise redundancy costs of £1m and other
restructuring costs of £4m.
Both Heery and Rail Germany are included within the Construction Services segment.
8.1.4.11 In 2015, transitioning other operating companies to the UK shared service centre in Newcastle-upon-Tyne and
increasing the scope led to incremental costs of £8m.
8 Non-underlying items continued
Continuing operations continued
8.14.12 In 2015, an impairment charge of £17m was recorded to write down intangible assets in relation to costs capitalised
in the transformation of the Group's UK IT estate from a federated to a more centralised model.
The charge was recognised in the following segments: Construction Services £9m; Support Services £7m; and Corporate £1m.
8.1.5.1 Refer to Note 8.1.4.3.8.1.5.2 In 2016, the joint venture within Rail Germany generated a trading gain of £nil for
the Group (2015: £1m gain). In addition to this, a £4m impairment charge was recognised on the joint venture following an
agreement to sell parts of Rail Germany to Tianjin Keyvia Electric Co Ltd. Refer to Note 8.1.4.8.
8.1.6 The non-underlying items charged against Group operating profit from continuing operations gave rise to a tax credit
of £4m comprising: £3m tax credit on amortisation of acquired intangible assets; £3m charge on the results of Rail Germany;
and £4m credit on other non-underlying items (2015: £4m comprising: £2m charge on the results of Rail Germany; £4m credit
on amortisation of acquired intangible assets; and £2m credit on other non-underlying items).
Discontinued operations
8.2.1.1 In 2015, the Group finalised the cash consideration due on the disposal of Parsons Brinckerhoff (PB) amounting to
additional consideration for the Group of £16m of which £7m was recognised as a receivable at the date of disposal in the
prior period. In accordance with the stock purchase agreement, the Group received cash of £20m relating to historical tax
matters (£16m of which was recognised as a current tax receivable in the prior period) and the Group also released an
indemnity provision relating to an historical legal claim of £3m which was successfully settled during the period.
Offsetting this additional non-underlying gain on disposal were separation costs incurred during the period of £4m, of
which £2m were paid during the period, and the write-off of a deferred tax asset of £7m resulting in an overall net gain of
£5m. Transaction costs of £9m, which were accrued in the prior period, were paid in the year.
Subsequently in 2016, the Group reached a settlement with the purchaser of PB in relation to outstanding tax matters and
indemnities. The Group received an additional £9m as a result of this settlement. At the same time, provisions in relation
to these matters have been released, resulting in an overall gain to the Group of £24m.
8.2.1.2 On 11 March 2015, as part of the ongoing process to exit the Mainland European rail businesses, the Group disposed
of Rail Italy for a cash consideration of £5m, resulting in a £4m loss being recognised in the year.
8.2.2 The non-underlying items credited to profit from discontinued operations gave rise to a tax charge of £nil (2015:
£nil).
9 Income taxes
Continuing operationsx UnderlyingItems12016£m Non-underlyingitems(Note 8)2016£m Total2016£m Total2015£m
Total UK tax 2 - 2 15
Total non-UK tax 10 (4) 6 (8)
Total tax charge/(credit) 12 (4) 8 7
Continuing operationsx
UK current tax
- current tax on profits for the year at 20% (2015: 20.25%) (1) - (1) 3
- adjustments in respect of previous periods (6) - (6) (5)
(7) - (7) (2)
Non-UK current tax
- current tax on profits for the year 1 2 3 4
- adjustments in respect of previous periods (9) (1) (10) (5)
(8) 1 (7) (1)
Total current tax (15) 1 (14) (3)
UK deferred tax
- origination and reversal of temporary differences 9 - 9 8
- adjustments in respect of previous periods 3 - 3 4
- UK corporation tax rate change (3) - (3) 5
9 - 9 17
Non-UK deferred tax
- origination and reversal of temporary differences 13 (5) 8 (12)
- adjustments in respect of previous periods 5 - 5 5
18 (5) 13 (7)
Total deferred tax 27 (5) 22 10
Total tax charge/(credit) from continuing operations 12 (4) 8 7
x Excluding joint ventures and associates.
1 Before non-underlying items (Note 8).
The standard rate of corporation tax in the UK was 20% during the year. The rate will be reduced to 19% with effect from 1
April 2017, with a further reduction to 17% from 1 April 2020. These changes were all substantively enacted prior to the
end of the year. The net impact of these rate changes was a £3m credit (2015: £5m charge) to the income statement and a
£nil charge (2015: £2m) to equity.
The Group tax charge excludes amounts for joint ventures and associates (refer to Note 14), except where tax is levied at
the Group level.
In addition to the Group tax charge, tax of £16m is credited (2015: £49m) directly to other comprehensive income,
comprising: a deferred tax credit of £1m for subsidiaries (2015: £16m); and a deferred tax credit in respect of joint
ventures and associates of £15m (2015: £33m).
10 Earnings per ordinary share
2016 2015
Earnings Basic£m Diluted£m Basic£m Diluted£m
Continuing operations
Earnings/(loss) - - (206) (206)
Amortisation of acquired intangible assets - net of tax credit of £3m (2015: £4m) 6 6 6 6
Other non-underlying items - net of tax credit of £1m (2015: £nil) 42 42 66 66
Underlying earnings/(loss) 48 48 (134) (134)
Discontinued operations
Earnings 24 24 - -
Other non-underlying items (24) (24) (1) (1)
Underlying loss - - (1) (1)
Total operations
Earnings/(loss) 24 24 (206) (206)
Amortisation of acquired intangible assets - net of tax credit of £3m (2015: £4m) 6 6 6 6
Other non-underlying items - net of tax credit of £1m (2015: £nil) 18 18 65 65
Underlying earnings/(loss) 48 48 (135) (135)
Basicm Dilutedm Basicm Dilutedm
Weighted average number of ordinary shares 680 684 682 682
Earnings per share Basicpence Dilutedpence Basicpence Dilutedpence
Continuing operations
Earnings/(loss) per ordinary share - - (30.2) (30.2)
Amortisation of acquired intangible assets 0.9 0.9 0.8 0.8
Other non-underlying items 6.1 6.1 9.7 9.7
Underlying earnings/(loss) per ordinary share 7.0 7.0 (19.7) (19.7)
Discontinued operations
Earnings per ordinary share 3.5 3.5 0.1 0.1
Other non-underlying items (3.5) (3.5) (0.2) (0.2)
Underlying loss per ordinary share - - (0.1) (0.1)
Total operations
Earnings/(loss) per ordinary share 3.5 3.5 (30.1) (30.1)
Amortisation of acquired intangible assets 0.9 0.9 0.8 0.8
Other non-underlying items 2.6 2.6 9.5 9.5
Underlying earnings/(loss) per ordinary share 7.0 7.0 (19.8) (19.8)
11 Dividends on ordinary shares
2016 2015
Per sharepence Amount£m Per sharepence Amount£m
Proposed dividends for the year
Interim - current year 0.9 6 - -
Final - current year 1.8 12 - -
2.7 18 - -
Recognised dividends for the year
Final - prior year - -
Interim - current year 6 -
6 -
There were no proposed or recognised dividends for 2015. The Board took the decision to suspend the dividend in 2015, to
ensure balance sheet strength was maintained during the initial stages of Build to Last. Following the demonstrable
progress made by the Group in the first year of the transformation programme and in the expectation of further solid and
measurable improvements, the Board is recommending a final dividend of 1.8p, following the interim dividend declared at the
half year of 0.9p. The Board continues to anticipate a progressive dividend policy going forward.
The interim 2016 dividend was paid on 2 December 2016. Subject to approval at the Annual General Meeting on 18 May 2017,
the final 2016 dividend will be paid on 7 July 2017 to holders on the register on 21 April 2017 by direct credit or, where
no mandate has been given, by cheque posted on 6 July 2017 payable on 7 July 2017. The ordinary shares will be quoted
ex-dividend on 20 April 2017.
12 Intangible assets - goodwill
Cost £m Accumulatedimpairmentlosses£m Carryingamount £m
At 1 January 2016 997 (153) 844
Currency translation differences 116 (25) 91
Additions (refer to Note 20.1) 2 - 2
Disposals (5) 5 -
At 31 December 2016 1,110 (173) 937
2016 2015
Carrying amounts of goodwill by cash-generating unit £m Pre-taxdiscount rate% £m Pre-taxdiscount rate%
UK Regional and Engineering Services 248 10.2 248 10.2
Balfour Beatty Construction Group Inc. 452 12.6 377 12.6
Rail UK 68 10.4 66 10.4
Gas & Water 58 10.2 58 10.3
Balfour Beatty Communities US 54 12.6 45 12.6
Other 57 10.2-12.8 50 10.3-12.7
Group total 937 844
12 Intangible assets - goodwill continued
The recoverable amount of goodwill is based on value-in-use, a key input of which is forecast cash flows. The Group's cash
flow forecasts are based on the expected workload of each cash-generating unit (CGU), giving consideration to the current
level of confirmed and anticipated orders. Cash flow forecasts for the next three years are based on the Group's Three Year
Plan, which covers the period from 2017 to 2019 and includes the stabilisation and recovery of the Construction Services UK
business to more normal levels of performance. The cash flow forecasts for each CGU were compiled from each of its
constituent business units as part of the Group's annual financial planning process.
The other key inputs in assessing each CGU are its long-term growth rate and discount rate. The discount rates have been
calculated using the Weighted Average Cost of Capital (WACC) method, which takes account of the Group's capital structure
(financial risk) as well as the nature of each CGU's business (operational risk). Long-term growth rates are assumed to be
the estimated future GDP growth rates based on published independent forecasts for the country or countries in which each
CGU operates, less 1.0% to reflect current economic uncertainties and their consequent estimated effect on public sector
spending on infrastructure.
In the derivation of each CGU's value-in-use, a terminal value is assumed based on a multiple of earnings before interest
and tax. The multiple is applied to a terminal cash flow, which is the normalised cash flow in the last year of the
forecast period. The EBIT multiple is calculated using the Gordon Growth Model and is a factor of the discount rate and
growth rate for each CGU. The nominal terminal value is discounted to present value.
2016 2015
Inflation rate% Real growth rate% Nominal long-term growth rate applied% Inflation rate% Real growth rate% Nominal long-term growth rate applied%
UK Regional and Engineering Services 1.8 1.1 2.9 1.6 1.2 2.8
Balfour Beatty Construction Group Inc. 1.9 1.5 3.4 1.6 1.7 3.3
Rail UK 1.8 1.1 2.9 1.6 1.2 2.8
Gas & Water 1.8 1.1 2.9 1.6 1.2 2.8
Balfour Beatty Communities US 1.9 1.5 3.4 1.6 1.7 3.3
Other 1.9 1.4 3.3 1.6 1.7 3.3
Sensitivities
The Group's impairment review is sensitive to changes in the key assumptions used. The major assumptions that result in
significant sensitivities are the discount rate and the long-term growth rate.
Using a pre-tax discount rate of 12.6% and nominal long-term growth rate of 3.4% the recoverable amount of the remaining
goodwill in Balfour Beatty Construction Group Inc. is £594m based on value-in-use, with consequent headroom of £142m. A
1.0% increase in the discount rate and a 1.0% reduction in the growth rate would lead to an impairment of £41m.
Except as noted above, a reasonable possible change in key assumptions will not give rise to an impairment in any of the
Group's CGUs.
In light of the significant, albeit reduced, losses incurred within the construction business in 2016 the Group has
considered whether a reasonable possible change in assumptions would lead to an impairment of the goodwill in the related
CGUs and concluded that it is not the case. The stabilisation and recovery of the Group's Construction Services UK business
to more normal levels of performance is however a key assumption underpinning the cash flow forecasts used to assess the
recoverable amount of the related goodwill.
13 Intangible assets - other
Cost£m Accumulatedamortisation£m Carryingamount£m
At 1 January 2016 489 (267) 222
Currency translation differences 50 (33) 17
Additions 11 - 11
Disposals (7) 4 (3)
Charge for the year - (21) (21)
Impairment charge - (1) (1)
Removal of fully amortised intangible asset (48) 48 -
At 31 December 2016 495 (270) 225
Other intangible assets comprise: acquired intangible assets of customer contracts, customer relationships, and brand
names; Infrastructure Investments' intangible assets on a student accommodation project in which the Group has demand risk;
and software and other.
14 Joint ventures and associates
Infrastructure Investments
ConstructionServices+£m SupportServices£m UK^£m North America£m Total£m
Income statement - continuing operations
Revenue1 1,381 27 220 120 1,748
Underlying operating profit1 29 1 6 15 51
Investment income 2 - 126 7 135
Finance costs (1) - (114) (9) (124)
Profit before taxation1 30 1 18 13 62
Taxation (3) - (4) - (7)
Profit after taxation before non-underlying items 27 1 14 13 55
Share of results within non-underlying items 1 - - - 1
Profit after taxation 28 1 14 13 56
Balance sheet
Intangible assets:
- goodwill 35 - - - 35
- Infrastructure Investments intangible - - 19 - 19
- other 3 - 12 - 15
Property, plant and equipment 29 - 33 - 62
Investment properties - - - 61 61
Investments in joint ventures and associates 4 - - - 4
PPP financial assets - - 1,941 188 2,129
Military housing projects - - - 121 121
Net cash/(borrowings) 341 - (1,340) (182) (1,181)
Other net (liabilities)/assets (268) 4 (331) (42) (637)
Net assets 144 4 334 146 628
^ Including Singapore and Australia. + Excludes the Group's share of the balance sheets of BK Gulf LLC and Dutco Balfour
Beatty LLC (Dutco) as this is presented within provisions for the reasons set out below.
1 Before non-underlying items (Note 8).
14 Joint ventures and associates continued
The Group has recognised losses in relation to Dutco+ in excess of the carrying value of its investment as the Group has
constructive obligations to provide further funding to make good these losses. At 31 December 2016, these losses amounted
to £12m (2015: £9m) and have been classified as other provisions.
As detailed in Note 24, on 26 January 2017 the Group reached agreement to sell its 49% interests in Dutco+ to its joint
venture partner. The sale subsequently completed on 1 March 2017.
The Group's investment in military housing joint ventures' and associates' projects is recognised at its remaining equity
investment plus the value of the Group's accrued returns from the underlying projects.
2015
Infrastructure Investments
ConstructionServices£m SupportServices£m UK^£m North America£m InfrastructureFund£m Total£m
Income statement - continuing operations
Revenue1 1,168 25 187 91 - 1,471
Underlying operating profit1 8 1 8 11 3 31
Investment income 2 - 160 4 - 166
Finance costs (2) - (129) (7) - (138)
Profit before taxation1 8 1 39 8 3 59
Taxation (3) - (9) - - (12)
Profit after taxation before non-underlying items 5 1 30 8 3 47
Share of results within non-underlying items (3) - - - - (3)
Profit after taxation 2 1 30 8 3 44
Balance sheet
Intangible assets:
- goodwill 30 - - - - 30
- Infrastructure Investments intangible - - 25 - - 25
- other - - 11 - - 11
Property, plant and equipment2 38 - 26 - - 64
Investment properties2 - - - 39 - 39
Investments in joint ventures and associates 5 - - - - 5
PPP financial assets - - 2,159 77 - 2,236
Military housing projects - - - 101 - 101
Infrastructure Fund Investment - - - - 38 38
Net cash/(borrowings) 234 - (1,525) (82) - (1,373)
Other net (liabilities)/assets (204) 4 (291) (23) - (514)
Net assets 103 4 405 112 38 662
Reclassify net liabilities relating to Dutco+ to provisions 9 - - - - 9
Adjusted net assets 112 4 405 112 38 671
^ Including Singapore and Australia.
+ Represents the combined results of BK Gulf LLC and Dutco Balfour Beatty LLC as both joint ventures have common ownership
and report under the same management structure.
1 Before non-underlying items (Note 8).
2 Re-presented to show assets that are held by the Group to generate rental income and/or capital appreciation separately
from property, plant and equipment. These assets meet the definition of investment properties and have been reclassified
accordingly.
15 Trade and other receivables
2016£m 2015 £m
Current
Trade receivables 653 506
Less: provision for impairment of trade receivables (7) (11)
646 495
Other receivables 60 45
Due from joint ventures and associates 58 55
Due from joint operation partners 7 10
Contract retentions receivable+ 242 202
Accrued income 17 24
Prepayments 36 54
1,066 885
Non-current
Other receivables 4 2
Due from joint ventures and associates 25 12
Contract retentions receivable+ 151 100
180 114
Total trade and other receivables 1,246 999
+ Including £390m (2015: £298m) construction contract retentions receivable.
16 Trade and other payables
2016£m 2015£m
Current
Trade and other payables 936 838
Accruals 701 755
Deferred income 15 7
VAT, payroll taxes and social security 73 67
Advance payments on contracts 4 -
Due to joint ventures and associates 11 25
Dividends on preference shares 6 5
Due on acquisitions 3 3
Due on disposals (Note 20.2.8) 3 -
1,752 1,700
Non-current
Trade and other payables 110 86
Accruals 20 18
Deferred income - 1
Due to joint ventures and associates 7 11
Due on acquisitions 14 14
151 130
Total trade and other payables 1,903 1,830
17 Retirement benefit liabilities
IAS 19 Employee Benefits prescribes the accounting for defined benefit schemes in the Group's financial statements.
Obligations are calculated using the projected unit credit method and discounted to a net present value using the market
yield on high-quality corporate bonds. The pension expense relating to current service cost is charged to contracts or
overheads based on the function of scheme members and is included in cost of sales and net operating expenses. The net
finance cost arising from the expected interest income on plan assets and interest cost on scheme obligations is included
in finance costs. Actuarial gains and losses are reported in the Statement of Comprehensive Income.
The investment strategy of the Balfour Beatty Pension Fund (BBPF) is to hold assets of appropriate liquidity and
marketability to generate income and capital growth. The BBPF invests partly in a diversified range of assets including
equities and hedge funds in anticipation that, over the longer term, they will grow in value faster than the obligations.
The equities are in the form of pooled funds and are a combination of UK, other developed market and emerging market
equities. The remaining BBPF assets are principally fixed and index-linked bonds and derivatives, providing protection
against movements in inflation and interest rates and hence enhancing the resilience of the funding level of the scheme.
The performance of the assets is measured against market indices.
Since 2014, the Group has been offering a commutation option for pensioner members and dependants with benefits with a
value of less than £30,000 and £18,000, respectively, to extinguish their benefits within the BBPF in exchange for a cash
lump sum. The acceptance of this offer by certain members and dependants gave rise to a settlement event resulting in a
decrease in liabilities of £1m (2015: £3m), which was recognised in other non-underlying items. Refer to Note 8.1.4.9.
On 1 July 2015, the Group established a Scottish Limited Partnership (SLP) structure into which its investment in Consort
Healthcare (Birmingham) Holdings Ltd (Consort Birmingham), which owns the Group's 40% interest in the Birmingham Hospital
PFI investment, was transferred. The BBPF is a partner in the SLP and is entitled to a share of the income of the SLP. In
accordance with IFRS 10 Consolidated Financial Statements, the SLP is deemed to be controlled by the Group, which retains
the ability to substitute the investment in Consort Birmingham for other investments from time to time. On 29 December
2016 the Group transferred into the SLP its investment in Holyrood Student Accommodation Holdings Ltd, which owns the
Group's 100% interest in the Edinburgh student accommodation project.
Under IAS 19, the investment held by the BBPF in the SLP does not constitute a plan asset and therefore the pension deficit
presented in these financial statements does not reflect the BBPF's interest in the SLP. Distributions from the SLP to the
BBPF will be reflected in the Group's financial statements as pension contributions on a cash basis. The first distribution
was received in December 2015 and amounted to £1m. A further distribution was received in 2016 and amounted to £1m.
Alongside the establishment of the SLP, agreement was reached to make a series of deficit payments to the BBPF with the
first payment of £4m paid in 2016. A further £5m is due in 2017; £7m due in 2018; £9m due in 2019; £13m due in 2020; £17m
due in 2021; £22m due in 2022; and £25m due in 2023.
A formal triennial funding valuation of the BBPF was carried out as at 31 March 2016. As a result, the Group agreed to make
ongoing deficit payments in addition to those set out above of £5m for the period from January 2017 to April 2017; £17m per
annum from April 2017; £19m per annum from April 2018; and £3m per annum from April 2020.
If the dividend cover ratio is below an agreed trigger level then the contributions set out above may need to be
accelerated.
17 Retirement benefit liabilities continued
This agreement constitutes a minimum funding requirement (MFR) under IFRIC 14 IAS 19: The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction. The Group has not recognised any liabilities in relation to this MFR as
any surplus of deficit contributions to the BBPF would be recoverable by way of a refund and the Group has the
unconditional right to the surplus and controls the run-off of the benefit obligations once all other obligations of the
BBPF have been settled. Implementation of the draft Amendment to IFRIC 14 when it becomes effective will not affect this
accounting.
Principal actuarial assumptions for the IAS 19 accounting valuations of the Group's principal schemes
2016 2015
BalfourBeattyPensionFund % RailwaysPensionScheme % BalfourBeattyPensionFund % RailwaysPensionScheme %
Discount rate 2.50 2.50 3.70 3.70
Inflation rate - RPI 3.20 3.20 3.00 3.00
- CPI 2.00 2.00 1.60 1.60
Future increases in pensionable salary 2.00 2.00 1.60 1.60
Rate of increase in pensions in payment (or such other rate as is guaranteed) 2.95 2.15 2.85 1.80
Number Number Number Number
Total number of defined benefit members 31,032 3,077 31,956 3,078
In December 2016, following independent advice from the Group's actuaries, the Group reassessed the difference between RPI
and CPI measures of price inflation from 1.4% in December 2015 to 1.2% increasing the retirement benefit liability by a
further £44m which was recognised in the Statement of Comprehensive Income.
The BBPF actuary undertakes regular mortality investigations based on the experience exhibited by pensioners of the BBPF
and due to the size of the membership of the BBPF is able to make comparisons of this experience with the mortality rates
set out in the various published mortality tables. The actuary is also able to monitor changes in the exhibited mortality
over time. This research is taken into account in the Group's mortality assumptions across its various defined benefit
schemes.
The mortality assumptions as at 31 December 2016 have been updated to reflect the experience of Balfour Beatty pensioners
for the period 1 April 2005 to 31 March 2016. The mortality tables adopted for the 2016 IAS 19 valuations are the
Self-Administered Pension Scheme (SAPS) S2 tables (2015: SAPS S2 tables) with a multiplier of 102% for all male and female
members (2015: 102%) and 109% for female widows and dependants (2015: 109%); all with future improvements in line with the
CMI 2015 core projection model (2015: CMI 2015 core projection model), with long-term improvement rates of 1.25% per annum
and 1.00% per annum for males and females
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