REG - Balfour Beatty PLC - Balfour Beatty PLC Half-Year Results 2017 <Origin Href="QuoteRef">BALF.L</Origin> - Part 5
16/08/2017 07:06
- Part 5: For the preceding part double click ID:nRSP0957Od
- ongoing deficit funding 10 29 41
Other 2 9 12
At end of period (208) (96)+ (231)
+ This amount represents the aggregate of the retirement benefit assets of £27m and the retirement benefit liabilities of
£123m at 1 July 2016. These amounts are shown separately on the balance sheet as the Balfour Beatty Pension Fund was in a
net surplus position of £27m.
In the first half of 2017, the Group recorded net actuarial gains on its retirement benefit schemes of £14 million (2016:
first half £22m net gains; full-year £121m net losses) primarily driven by a small reduction in life expectancy based on
the latest mortality studies.
15 Retirement benefit assets and liabilities continued
The investment strategy of the Balfour Beatty Pension Fund (BBPF) and the sensitivity analysis of the Group's retirement
benefit obligations and assets to different actuarial assumptions are set out in Note 28 on pages 149 to 155 of the Annual
Report and Accounts 2016.
The formal triennial valuation of both the BBPF as at 31 March 2016 and the RPS as at 31 December 2013 were completed
during 2016, refer to page 150 of the Annual Report for a summary of the committed deficit contributions as a result of
these valuation. The triennial valuation for the RPS as at 31 December 2016 is currently ongoing.
16 Share capital
During the half-year ended 30 June 2017 478,131 (2016: first half 1,565,128; full-year 1,565,128) ordinary shares were
purchased for £1m (2016: first half £4m; full-year £4m) by the Group's employee discretionary trust to satisfy awards under
the Performance Share Plan, the Deferred Bonus Plan and the Restricted Share Plan.
17 Notes to the statement of cash flows
Continuing operations
17.1 Cash generated from/(used in) operations Underlying items2017first half unaudited1£m Non-underlying items2017first half unaudited£m Discontinued operations 2017first halfunaudited£m Total2017first half unaudited£m Total2016first halfunaudited£m Total2016year audited£m
Profit/(loss) from operations 39 (10) 6 35 (21) 39
Share of results of joint ventures and associates (30) - (1) (31) (20) (56)
Depreciation of property, plant and equipment 15 - - 15 17 30
Amortisation of other intangible assets 6 5 - 11 7 21
Impairment of IT intangible assets - - - - - 1
Pension deficit payments (10) - - (10) (29) (41)
Pension fund settlement gain - - - - - (1)
Movements relating to share-based payments 3 - - 3 3 7
Profit on disposal of investments in infrastructure concessions - - - - (52) (65)
Profit on disposal of property, plant and equipment (2) - - (2) (1) (5)
Net gain on disposal of other businesses - - (5) (5) (8) (32)
Impairment of land/goodwill relating to Blackpool Airport - - - - 2 3
Other non-cash items - - - - 2 -
Operating cash flows before movements in working capital 21 (5) - 16 (100) (99)
(Increase)/decrease in operating working capital - (9) - (9) 1 (48)
Inventories and non-construction work in progress (1) - - (1) 14 42
Due from construction contract customers (11) 2 - (9) (15) (5)
Trade and other receivables (80) 25 - (55) (10) (134)
Due to construction contract customers 6 (6) - - (8) 41
Trade and other payables 69 (20) - 49 (25) (60)
Provisions 17 (10) - 7 45 68
Cash generated from/(used in) operations 21 (14) - 7 (99) (147)
1 Before non-underlying items (Note 7).
17 Notes to the statement of cash flows continued
17.2 Cash and cash equivalents 2017first halfunaudited£m 2016first halfunaudited£m 2016yearaudited£m
Cash and deposits 459 541 605
Term deposits 230 162 157
Bank overdrafts (2) (3) (1)
Cash and cash equivalents, excluding cash balances within infrastructure concessions 687 700 761
Cash balances within infrastructure concessions 154 25 7
841 725 768
17.3 Analysis of net borrowings 2017first halfunaudited£m 2016first halfunaudited£m 2016yearaudited£m
Cash and cash equivalents, excluding overdrafts and cash balances within infrastructure concessions 689 703 762
Bank overdrafts (2) (3) (1)
US private placement (270) (263) (285)
Liability component of convertible bonds (243) (236) (240)
Loans under committed facilities - (75) (50)
Other loans (13) (10) (12)
Finance leases - (1) (1)
Net cash excluding infrastructure concessions 161 115+ 173
Non-recourse infrastructure concessions project finance loans at amortised cost with final maturity between 2019 and 2062 (446) (413) (240)
Infrastructure concessions cash and cash equivalents 154 25 7
(292) (388) (233)
Net borrowings (131) (273) (60)
+Net cash for the Group excluding infrastructure concessions and including £14m of cash reported within assets held for sale amounts to £129m at 1 July 2016.
17.4 Analysis of movement in net (borrowings)/cash Infrastructureconcessionsnon-recourseproject finance2017first halfunaudited£m Other2017first halfunaudited£m Total2017first halfunaudited£m 2016first halfunaudited£m 2016yearaudited£m
Opening net (borrowings)/cash (233) 173 (60) (202) (202)
Currency translation differences 2 5 7 19 24
Net increase/(decrease) in cash and cash equivalents 147 (64) 83 26 25
Accretion on convertible bonds - (3) (3) (3) (7)
Proceeds from new loans (210) - (210) (111) (117)
Repayments of loans 2 50 52 12 26
Disposal of non-recourse borrowings - - - - 191
Net increase in cash within assets held for sale - - - (14) -
Closing net (borrowings)/cash (292) 161 (131) (273) (60)
17.5 Borrowings
During the first half of 2017, the significant movements in net borrowings within the infrastructure concessions
non-recourse project finance were: a net increase in cash and cash equivalents of £146m (2016: first half increase £5m,
full-year decrease £13m) and an increase of £210m (2016: first half £36m, full-year £65m) in non-recourse loans funding the
development of assets in infrastructure concession subsidiaries. The proceeds from new loans and the increase in cash
primarily relate to the development of the University of Sussex. The Group has capitalised construction cost incurred to
date within intangible asset in line with IFRIC 12 Service Concession Arrangements as the Group bears demand risk for this
project.
17 Notes to the statement of cash flows continued
17.5 Borrowings
During the first half of 2017, the significant movements in net cash within the Group's other financing arrangements were:
a decrease in cash and cash equivalents of £62m (2016: first half increase £21m, full-year increase £38m), and a repayment
of loans of £50m (2016: first half £nil, full-year £1m).
18 Acquisitions and disposals
18.1 Acquisitions
There were no acquisitions made in the first half of 2017.
18.2 Disposals
Notes Disposal date Entity/business Percentagedisposed % CashConsideration*£m Net assetsdisposed £m Amount recycled fromreserves£m Direct costs incurred £m Underlying gain £m Non-underlying gain/(loss) £m
18.2.1 1 March 2017 Dutco Balfour Beatty LLC & BK Gulf LLC ^ 49% 10 5+ - - - 5
10 5 - - - 5
^ Joint venture.
+ Net assets disposed include loan receivables due to Balfour Beatty plc from BK Gulf LLC of £17m which was settled as part
of the disposal.
* Cash consideration above reflects the discounted amount for the element of the consideration which has been deferred.
18.2.1 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 £11m, an element of which has been 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 gain on the disposal is presented as non-underlying
within discontinued operations.
18.2.2 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 was recognised as a disposal in 2016 as completion of the sale was not subject to any substantive terms
at that year end. The Group subsequently completed the disposal in March 2017. Payment of £2m was made by the Group in the
first half of the year with a further £1m being recorded in amounts due on disposal within trade and other payables (refer
to Note 13).
19 Related party transactions
The Group has contracted with, provided services to, and received management fees from certain joint ventures and
associates amounting to £143m (2016: first half £184m, full-year £344m). 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. The amounts due from or to joint ventures and associates at the reporting date are disclosed in
Notes 12 and 13 respectively.
During the half-year ended 30 June 2017, 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 the first half of 2017 as they are controlled
or jointly controlled by a non-executive director of Balfour Beatty plc.
2017first half 2016first half 2016year
unaudited£m unaudited£m audited£m
Anglian Water Group Ltd
Sale of goods & services 8 5 13
Urenco Ltd
Sale of goods & services 45 25 62
Amounts owed by related parties 3 1 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.
20 Financial instruments
Fair value estimation
The Group holds certain financial instruments on the balance sheet at their fair values. The following hierarchy classifies
each class of financial asset or liability in accordance with the valuation technique applied in determining its fair
value.
Level 1 - The fair value is calculated based on quoted prices traded in active markets for identical assets or
liabilities.
The Group holds available-for-sale investments in mutual funds which are traded in active markets and valued at the closing
market price at the reporting date.
Level 2 - The fair value is based on inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly.
The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows utilising yield
curves at the reporting date and taking into account own credit risk. Own credit risk for Infrastructure Investments' swaps
is not material and is calculated using the following credit valuation adjustment (CVA) calculation: loss given default
multiplied by exposure multiplied by probability of default.
The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the reporting
date and yield curves derived from quoted interest rates matching the maturities of the foreign exchange contracts. Own
credit risk for the other derivative liabilities is not material and is calculated by applying a relevant credit default
swap (CDS) rate obtained from a third party.
Level 3 - The fair value is based on unobservable inputs.
There have been no transfers between these categories in the current period or preceding year.
20 Financial instruments continued
Financial instruments at fair value 2017first halfunaudited£m 2016first halfunaudited£m 2016yearaudited£m
Financial assets
Level 1
Available-for-sale mutual fund financial assets 23 21 23
Level 2
Financial assets - foreign currency contracts 5 4 4
Level 3
Available-for-sale PPP financial assets (Note 14) 159 432 163
Total assets measured at fair value 187 457 190
Financial liabilities
Level 2
Financial liabilities - foreign currency contracts (2) (3) (2)
Financial liabilities - infrastructure concessions interest rate swaps (33) (112) (37)
Total liabilities measured at fair value (35) (115) (39)
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the Group for similar financial instruments.
Level 3 financial assets
PPP financial assets
The fair value of the Group's PPP financial assets is determined in the construction phase by applying an attributable
profit margin by reference to the construction margin on non-PPP projects reflecting the construction risks retained by the
construction contractor, and fair value of construction services performed. In the operational phase it is determined by
discounting the future cash flows allocated to the financial asset at a discount rate which is based on long-term gilt
rates adjusted for the risk levels associated with the assets, with market-related movements in fair value recognised in
other comprehensive income and other movements recognised in the income statement. Amounts originally recognised in other
comprehensive income are transferred to the income statement upon disposal of the asset.
A change in the discount rate would have a significant effect on the value of the asset and a 50 basis points
increase/decrease, which represents management's assessment of a reasonably possible change in the risk-adjusted discount
rate, would lead to a £7m decrease (2016: first half £20m; full-year £7m) / £7m increase (2016: first half £18m; full-year
£7m) in the fair value of the assets taken through equity. Refer to Note 14 for a reconciliation of the movement from the
opening balance to the closing balance.
21 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; 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.
22 Contingent liabilities
The Group 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.
23 Events after the reporting date
There are no material post balance sheet events between the balance sheet date and the date of this report.
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