REG - Balfour Beatty PLC - Balfour Beatty 2016 Full Year Results <Origin Href="QuoteRef">BALF.L</Origin> - Part 5
16/03/2017 07:07
- Part 5: For the preceding part double click ID:nRSP6150Zd
respectively (2015: 1.25% per annum and 1.00% per annum).
2016 2015
Average life expectancy at 65 years of age Average life expectancy at 65 years of age
Male Female Male Female
Members in receipt of a pension 22.1 23.9 22.1 23.9
Members not yet in receipt of a pension (current age 50) 23.4 25.0 23.4 25.0
17 Retirement benefit liabilities continued
Amounts recognised in the Balance Sheet
2016 2015
BalfourBeattyPensionFund£m RailwaysPensionScheme£m Other schemes^ £m Total£m BalfourBeattyPensionFund £m RailwaysPensionScheme£m Other schemes^ £m Total£m
Present value of obligations (3,683) (416) (56) (4,155) (3,031) (314) (52) (3,397)
Fair value of plan assets 3,621 303 - 3,924 2,988 263 - 3,251
Liabilities in the balance sheet (62) (113) (56) (231) (43) (51) (52) (146)
^ Available-for-sale investments in mutual funds of £23m (2015: £20m) are held to satisfy the Group's deferred compensation
obligations.
The defined benefit obligation comprises £56m (2015: £52m) arising from wholly unfunded plans and £4,099m (2015: £3,345m)
arising from plans that are wholly or partly funded.
Movements in the retirement benefit liabilities for the year 2016£m
At 1 January 2016 (146)
Currency translation differences (9)
Current service cost (6)
Interest cost (122)
Interest income 118
Actuarial movements - on obligations from reassessing the difference between RPI and CPI (44)
- on obligations from changes to other financial assumptions (806)
- on obligations from changes in demographic assumptions (51)
- on obligations from experience gains 76
- on assets 704
Contributions from employer - regular funding 2
- ongoing deficit funding 41
Benefits paid 4
Settlements 2
Businesses disposed 6
At 31 December 2016 (231)
The BBPF includes a defined contribution section with 13,290 members at 31 December 2016 (2015: 13,163 members) with £44m
(2015: £45m) 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 £50m (2015: £53m).
Sensitivity of the Group's retirement benefit obligations at 31 December 2016 to different actuarial assumptions
Percentagepoints/years (Decrease)/increase inobligations % (Decrease)/increase inobligations £m
Increase in discount rate 0.5% (8.0)% (330)
Increase in market expectation of RPI inflation 0.5% 5.9% 241
Increase in salary growth 0.5% 0.1% 4
Increase in life expectancy 1 year 4.3% 177
Sensitivity of the Group's retirement benefit assets at 31 December 2016 to changes in market conditions
Percentagepoints (Decrease)/increase inassets% (Decrease)/increase inassets£m
Increase in interest rates 0.5% (9.2)% (359)
Increase in market expectation of RPI inflation 0.5% 4.6% 181
18 Share capital
During the year ended 31 December 2016, 1,565,128 (2015: 7,292,588) ordinary shares were purchased for £4m (2015: £17m) 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
19.1 Cash (used in)/generated from operations Underlying items12016£m Non-underlying items(Note 8)2016£m Discontinuedoperations 2016£m Total2016£m Total2015£m
Profit/(loss) from operations 67 (52) 24 39 (182)
))
Share of results of joint ventures and associates (55) (1) - (56) (44)
Depreciation of property, plant and equipment 29 1 - 30 35
Amortisation of other intangible assets 12 9 - 21 25
Impairment of IT intangible assets 1 - - 1 17
Pension deficit payments (41) - - (41) (66)
Pension fund settlement gain - (1) - (1) (3)
Movements relating to share-based payments 7 - - 7 5
Profit on disposal of investments in infrastructure concessions (65) - - (65) (95)
Net gain on disposal of other businesses - (8) (24) (32) (14)
Profit on disposal of property, plant and equipment (5) - - (5) (1)
Impairment of land relating to Blackpool airport (2015: impairment of goodwill) - 3 - 3 4
Impairment of assets within Rail Germany - - - - 7
Other non-cash items - - - - (1)
Operating cash flows before movements in working capital (50) (49) - (99) (313)
(Increase)/decrease in operating working capital (82) 34 - (48) 178
Inventories and non-construction work in progress 42 - - 42 27
Due from construction contract customers (14) 9 - (5) 182
Trade and other receivables (121) (13) - (134) 74
Due to construction contract customers 60 (19) - 41 126
Trade and other payables (53) (7) - (60) (236)
Provisions 4 64 - 68 5
Cash (used in)/generated from operations (132) (15) - (147) (135)
1 Before non-underlying items (Note 8).
19.2 Cash and cash equivalents 2016£m 2015£m
Cash and deposits 605 562
Term deposits 157 84
Cash balances within infrastructure concessions 7 20
Bank overdrafts (1) (3)
768 663
19 Notes to the statement of cash flows continued
19.3 Analysis of net borrowings 2016£m 2015£m
Cash and cash equivalents, excluding overdrafts and cash balances within infrastructure concessions 762 646
Bank overdrafts (1) (3)
US private placement (285) (236)
Liability component of convertible bonds (240) (233)
Loans under committed facilities (50) -
Other loans (12) (10)
Finance leases (1) (1)
173 163
Non-recourse infrastructure concessions project finance loans at amortised cost with final maturity between 2019 and 2048 (240) (385)
Infrastructure concessions cash and cash equivalents 7 20
(233) (365)
Net borrowings (60) (202)
19.4 Analysis of movement in net (borrowings)/cash Infrastructureconcessionsnon-recourseproject finance2016£m Other2016£m Total2016£m Total2015£m
Opening net borrowings (365) 163 (202) (226)
Currency translation differences (6) 30 24 (15)
Net (decrease)/increase in cash and cash equivalents (13) 38 25 (83)
Accretion on convertible bonds - (7) (7) (6)
Proceeds from new loans (65) (52) (117) (79)
Repayments of loans 25 1 26 12
Disposal of non-recourse borrowings 191 - 191 177
Net decrease in cash within assets held for sale - - - 18
Closing net (borrowings)/cash (233) 173 (60) (202)
19.5 Borrowings
During the year ended 31 December 2016, the significant movements in borrowings were: an increase in new loans of £52m
(2015: £nil); an increase of £65m (2015: £79m) in non-recourse loans funding the development of infrastructure projects in
subsidiaries; disposal of non-recourse borrowings in streetlighting projects of £191m (2015: £177m on disposal of Thanet
OFTO HoldCo Ltd); and repayment of £25m (2015: £11m) of non-recourse loans.
20 Acquisitions and disposals
20.1 Current and prior year acquisitions
On 30 September 2016, the Group acquired 100% of Omnicom Engineering Ltd for a purchase price of £3m. The consideration
includes a deferred consideration element of £0.3m which is subject to Omnicom securing key orders at an acceptable level
of margin. The acquisition resulted in goodwill of £2m. Refer to Note 12. There were no material acquisitions in 2015.
Deferred consideration paid during 2016 in respect of acquisitions completed in earlier years was £3m (2015: £3m). This
related to the Group's acquisition of Centex Construction in 2007.
20.2 Current year disposals
Notes Disposal date Entity/business Percentagedisposed % Cashconsideration£m Net assetsdisposed £m Amount recycled fromreserves£m Direct costs incurred,indemnityprovisionscreated andfair valueuplift £m Underlying gain £m Non-underlying gain/(loss) £m
20.2.1 15 April 2016 Connect M1-A1 Holdings Ltd ^ 30% 15 (10)& - - 5 -
20.2.2 5 May 2016 Living & Learning Unit Trust ^ 50% 19 (1) (8) (1) 9 -
20.2.3 1 July 2016 BSF Schools: Islington, Southwark, Blackburn with Darwen & Bolton, Oldham, Hertfordshire, Ealing, Derby City ^ 80/90% 73 (27) (8) - 38 -
20.2.4 1 July 2016 BBIP Infrastructure Fund + 17.8% 48 (48) 7 (1) - 6
20.2.5 1 July 2016 BBIP Advisor * 100% - (3) - - - (3)
20.2.6 7 September 2016 Humber Gateway ^ 40% 2 - - - 2 -
20.2.7 21 September 2016 Parts of Rail Germany * 100% 15 (14) 2 (1) - 2
20.2.8 21 November 2016 Balfour Beatty Sakti Indonesia ^ 49% (3) 3 - - - -
20.2.9 15 December 2016 Streetlighting: Sunderland, South Tyneside, Coventry, Cambridgeshire, Northamptonshire * 80% 33 (37) 15 - 11 -
202x (137) 8 (3) 65 5
* Subsidiary.
^ Joint venture.
+ Associate.
X Total cash consideration received by the Group also includes £9m of cash received in respect of Parsons Brinckerhoff
(Note 8.2.1.1) and £2m of deferred cash consideration received in respect of SSL (Note 8.1.4.7).
& Net assets disposed include amounts due to the joint venture of £4m held by the Company.
20.2.1 On 15 April 2016, the Group disposed of a 30% interest in Connect M1-A1 Holdings Ltd for a cash consideration of
£15m. The infrastructure concession disposal resulted in a net gain of £5m being recognised within underlying operating
profit. The Group retains a 20% interest in Connect M1-A1 Holdings Ltd.
20.2.2 On 5 May 2016, the Group disposed of its 50% interest in Living & Learning Holdings Custodians Pty Ltd (Living &
Learning Unit Trust) for a cash consideration of £19m. The infrastructure concession disposal resulted in a net gain of £9m
being recognised within underlying operating profit, comprising: a gain of £18m in respect of the investment in the joint
venture, an £8m loss in respect of revaluation reserves recycled to the income statement and £1m costs of disposal
incurred.
20 Acquisitions and disposals continued
20.2.3 On 1 July 2016, the Group disposed of its entire interest in seven BSF (Building Schools for the Future) projects:
Islington, Southwark, Blackburn with Darwen & Bolton, Oldham, Hertfordshire, Ealing and Derby City for a cash consideration
of £73m. On this date, the Group ceased to jointly control these BSF projects by virtue of a put/call structure with a
preferred bidder. The disposal completed on 22 August 2016. The infrastructure concession disposal resulted in a net gain
of £38m being recognised within underlying operating profit, comprising: a gain of £46m in respect of the investments in
the joint ventures and an £8m loss in respect of revaluation reserves recycled to the income statement.
20.2.4 On 1 July 2016, the Group disposed of its 17.8% interest in the BBIP Infrastructure Fund for an initial cash
consideration of £48m. The disposal resulted in a net gain of £6m being recognised within non-underlying operating profit,
comprising: a gain of £nil in respect of the investment in the associated undertaking, a £7m gain in respect of revaluation
reserves recycled to the income statement and £1m costs of disposal incurred.
20.2.5 On 1 July 2016, the Group disposed of its 100% interest in the BBIP Advisor for a cash consideration of £nil. The
disposal resulted in a net loss of £3m being recognised within non-underlying operating profit, comprising a loss of £3m in
respect of the investment in the subsidiary.
20.2.6 On 7 September 2016, the Group disposed of its right to a 40% interest in Humber Gateway OFTO Holdings Ltd. The
infrastructure concession disposal resulted in a net gain of £2m being recognised within underlying operating profit
comprising a £2m fee received on disposing of the Group's interest. The Group retains a 20% interest in Humber Gateway OFTO
Holdings Ltd.
20.2.7 On 21 September 2016, as part of the ongoing process to exit the Mainland European rail business, the Group disposed
of part of its Rail business in Germany to Tianjin Keyvia Electric Co Ltd for a cash consideration of £15m. This sale
resulted in a £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 which was recognised within non-underlying items (refer to
Note 8.1.4.8). The disposal included cash disposed of £10m.
20.2.8 On 21 November 2016, the Group reached agreement to dispose of its 49% interest in Balfour Beatty Sakti Indonesia to
its joint venture partner for a payment by the Group of £3m reflecting the Group's share of the net liabilities of the
joint venture. This has been recognised as a disposal in the year as completion of the sale is not subject to any
substantive terms at the year end. The amount due to the purchaser has been recognised in amounts due on disposal within
trade and other payables (refer to Note 16).
20.2.9 On 16 December 2016, the Group disposed of 80% interests in five streetlighting projects for a cash consideration of
£33m. This infrastructure concession disposal resulted in a net gain of £11m being recognised within underlying operating
profit, comprising: a loss of £4m in respect of the investments in subsidiaries and a £15m gain in respect of fair value
reserves recycled to the income statement. The Group retains 20% interests in the infrastructure concession projects which
are accounted for as joint ventures under the equity method. The disposal included cash disposed of £16m.
20 Acquisitions and disposals continued
20.2.10 In 2015, the Group finalised the cash consideration due on the disposal of Parsons Brinckerhoff (PB) amounting to
additional consideration for the Group of £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.
21 Contingent liabilities
The Company and certain subsidiary undertakings have, in the normal course of business, given guarantees and entered into
counter-indemnities in respect of bonds relating to the Group's own contracts and given guarantees in respect of their
share of certain contractual obligations of joint ventures and associates and certain retirement benefit liabilities of the
Balfour Beatty Pension Fund and the Railways Pension Scheme. Guarantees are treated as contingent liabilities until such
time as it becomes probable payment will be required under the terms of the guarantee.
Provision has been made for the Directors' best estimate of known legal claims, investigations and legal actions in
progress. The Group takes legal advice as to the likelihood of success of claims and actions and no provision is made where
the Directors consider, based on that advice, that the action is unlikely to succeed, or that the Group cannot make a
sufficiently reliable estimate of the potential obligation.
22 Related party transactions
The Group has contracted with, provided services to, and received management fees from, certain joint ventures and
associates amounting to £344m (2015: £414m). These transactions occurred in the normal course of business at market rates
and terms. In addition, the Group procured equipment and labour on behalf of certain joint ventures and associates which
were recharged at cost with no mark-up. The amounts due from or to joint ventures and associates at the reporting date are
disclosed in Notes 15 and 16 respectively.
During 2016, the Group also entered into the following transactions with related parties which are not members of the
Group. The following companies were related parties in 2016 as they are controlled or jointly controlled by a non-executive
director of Balfour Beatty plc.
Sale of goods& services 2016£m Purchase of goods & services 2016£m Amounts owed by related parties 2016£m Amounts owed to related parties 2016£m
Urenco Ltd 62 - 5 -
Anglian Water Group Ltd 13 9 - -
75 9 5 -
All transactions with these related parties were conducted on normal commercial terms, equivalent to those conducted with
external parties. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or
received. No expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related
parties.
23 Principal risks and uncertainties
The nature of the principal risks and uncertainties which could adversely impact the Group's profitability and ability to
achieve its strategic objectives include: external risks arising from the effects of national or market trends and
political change and the complex and evolving legal and regulatory environments in which the Group operates; strategic
risks which may arise as the Group moves into new territories and expands through acquisitions; organisation and management
risks including business conduct and people related risks; and operational risks arising from bidding, project execution,
supply chain and health, safety and sustainability matters.
The Directors do not consider that the nature of the principal risks and uncertainties facing the Group has fundamentally
changed since the publication of the Annual Report and Accounts 2015.
The transformation of Balfour Beatty over the last two years means that management has much greater visibility and control
over the business than was the case prior to Build to Last. This means that the strengthened leadership team is much better
positioned to adjust and respond to changes in market conditions in the UK or elsewhere.
Skills shortages within construction have been a challenge for several years. The UK's decision to leave the European Union
with the potential for reduction in free movement of people is likely to exacerbate the situation at a time when demand for
skilled workers will increase given the pipeline of projects due to start in the coming years.
24 Events after the reporting date
On 26 January 2017, the Group reached agreement to sell its 49% interests in Dutco Balfour Beatty LLC and BK Gulf LLC to
its joint venture partner for a total cash consideration of £11m. The sale subsequently completed on 1 March 2017. The
Group's investment in these entities did not satisfy the criteria under IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations at the balance sheet date and therefore continued to be presented within the Group's underlying
continuing operations. Following the agreement to sell in January 2017, the criteria under IFRS 5 are now satisfied and
therefore the Group's share of results in these entities will be presented as part of its discontinued operations with
comparatives restated accordingly in its 2017 financial statements. The impact of the disposal will be presented as
non-underlying within discontinued operations.
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