REG - Balfour Beatty PLC - Full Year Results <Origin Href="QuoteRef">BALF.L</Origin> - Part 2

Balfour BeattyAnnouncement

25/03/2015 07:12

- Part 2: For the preceding part double click  ID:nRSY3723Ia 

2014, and appropriately accounted for in that
year, and for the year ended 31 December 2013 the aggregate impact of any errors was not material. Accordingly the 2013
accounts have not been restated. There were, however, certain contracts at 27 June 2014 where there were errors principally
due to unrealistic cost and scope assumptions. As a consequence when we publish our half-year accounts for the period
ending 26 June 2015 we intend to restate the comparatives for the half-year ended 27 June 2014, to reduce the profits from
UK construction by £16 million. 
 
Earnings per share 
 
Underlying loss per share from continuing operations was 11.5 pence (2013: earnings 15.3 pence), which along with
underlying earnings per share from discontinued operations of 3.5 pence (2013: 6.2 pence), gave an underlying loss per
share for total operations of 8.0 pence (2013: earnings 21.5 pence). Total loss per ordinary share was 8.6 pence (2013: 5.1
pence). 
 
Dividends 
 
Whilst the Board continues to recognise the importance of the dividend to its shareholders, in order to ensure balance
sheet strength is maintained during the transformation programme it will not be recommending a final dividend payable for
2014. This results in a total dividend for the year of 5.6 pence (2013: 14.1 pence). The Board will look to reinstate the
dividend in March 2016, at an appropriate level. 
 
Goodwill and intangible assets 
 
The goodwill on the Group's balance sheet at 31 December 2014 decreased by £222 million to £826 million (2013: £1,048
million), with a reduction of £227 million due to the disposal of PB. A further £24 million reduction resulted from
reviewing the sale proceeds achievable for Rail Italy, and as a consequence writing down its goodwill to £nil. 
 
Other intangible assets increased to £216 million (2013: £204 million). Additions in the year included £28 million in
Infrastructure Investments from the continuing construction of Edinburgh student accommodation, and £35 million of
software. Amortisation charges decreased to £25 million (2013: £35 million), however there were impairment charges of £27
million as a result of focusing the Oracle R12 rollout on the UK construction business only, and stopping the rollout to
Support Services. 
 
Impairment reviews have been carried out, and none of the carrying values, other than noted above, have been impaired.
There is however limited headroom in the US construction business and in Blackpool Airport such that a change in
assumptions could result in an impairment. 
 
Pensions - balance sheet movement 
 
The Group's balance sheet includes aggregate deficits of £128 million (2013: £434 million) for the Group's pension
schemes. 
 
The Group recorded net actuarial gains on those schemes totalling £237 million (2013: £117 million). There were £337
million (2013: £73 million) of actuarial losses recorded on the present value of the obligations, largely resulting from
the effects of lower discount rates. However, these losses were more than offset by an excellent performance on the asset
portfolio, particularly benefiting from the bonds and gilts and interest rate and inflation hedges, resulting in actuarial
gains of £574 million (2013: losses £44 million). A formal triennial funding valuation of the Balfour Beatty Pension Fund
(BBPF) was carried out as at 31 March 2013 and showed a funding position of 88%. 
 
Agreement has been reached to make two sets of additional deficit contributions to the BBPF. Firstly, in respect of the
disposal of Balfour Beatty WorkPlace in December 2013, a £15 million contribution payable in monthly instalments during
2015. Secondly, in respect of the sale of PB in October 2014, an £85 million contribution. Subject to definitive
documentation, this will be payable over the period to 2023, with the first payment of £4 million due in 2016. 
 
Balance sheet and capital structure 
 
The Group looks to achieve a balance between the favourable/negative working capital, liquid funds and facilities and the
Investments portfolio. During 2014 there was, as anticipated, a reduction in negative working capital in the first half of
the year, with a small improvement before the impact of year end contract write-downs. In the second half, there was an
increase in negative working capital in Construction Services. Liquid funds were significantly boosted by the sale of PB.
The Directors' valuation of the Investments portfolio increased to £1,300 million, despite the continuing asset sales.
Overall the Group finished the year with a strong balance sheet. 
 
Cash flow performance 
 
Total cash used in operations was £352 million (2013: £162 million), before tax. £114 million was due to non- underlying
items including the outflows from certain ES legacy contracts and Rail Germany. £46 million arose in discontinued
businesses which saw a £95 million working capital outflow, principally due to PB's trading flows up to the end of October
not benefiting from the usual improvement that is seen by the end of the year. Cash used in underlying operations was £192
million, after a working capital inflow of £26 million. 
 
Average net borrowings in the second half of the year were £318 million, although with the sale of PB on 31 October, and a
strong cash performance at the end of the year, the Group's net cash position at 31 December 2014 was £219 million (2013:
net debt £66 million), excluding net cash in discontinued operations of £15 million (2013: £19 million) and £445 million
(2013: £354 million) of non-recourse net borrowings held in wholly owned infrastructure concessions. The balance sheet also
includes £96 million for the liability component of the preference shares. 
 
Working capital 
 
Including the impact of exchange, favourable/negative working capital increased from £550 million at the end of 2013 to
£731 million at the end of 2014. This was impacted by the disposal of PB which had £112 million of unfavourable/positive
working capital at the end of 2013, which was effectively crystallised in cash on disposal. Construction Services negative
working capital increased by £93 million in the year. In the US construction business working capital has remained
relatively stable for the last couple of years, and should benefit from revenue growth going forwards. In the UK
construction business working capital became less favourable, as anticipated, however this was offset at the end of the
year by additional cost estimates and risk contingencies on a number of contracts. 
 
Total working capital as a percentage of annualised revenue (WCPR) at the end of the year was (9.9)% (2013: (8.5)%). The
most significant component of negative working capital relates to Construction Services, which ended the year with WCPR of
(12.2)% (2013: (9.7)%). 
 
In 2015, the Group is targeting an improvement in the favourable working capital position from the impact of working
capital improvement initiatives under Build to Last, once the impact of the additional cost provisions has flowed through.
The Group continues to monitor developments in the UK on both project bank accounts, in which it had £17 million of cash at
year end, and potential changes in legislation regarding payment terms. 
 
Banking facilities 
 
The Group's principal committed bank facilities total £760 million and extend through to 2016. They were reduced from £950
million in the year following the receipt of proceeds from the sale of PB. The purpose of these facilities, and other small
facilities, is to provide liquidity from a group of core relationship banks to support Balfour Beatty in its current and
future activities. Over time, as the Group's business has evolved and particularly reflecting the long-term nature of the
Investments portfolio, the Group diversified its sources of funds away from the shorter term bank market through the issue
of US$350 million of US private placement notes in March 2013 with maturities up to 2025, and £253 million of unsecured
convertible bonds in November 2013 with December 2018 maturity. 
 
At 31 December 2014, the Group's £760 million of committed bank facilities were undrawn. 
 
Foreign currency risk 
 
The Group is exposed to foreign currency risk primarily in the US, Asia-Pacific, and the Middle East although this is now
significantly reduced following the sale of PB. The average exchange rate for 2014 was US$1.65:£1 (2013: US$1.57:£1).
Sterling steadily weakened from the middle of the year, and ended the year with a closing rate of US$1.56:£1 (2013:
US$1.65:£1). 
 
Financial risk factors and going concern 
 
The key financial risk factors for the Group, other than the reduced foreign currency risk noted above, remain largely
unchanged, although following the sale of PB, its operations are significantly less diversified. Some elements of the
Group's markets are recovering, and this can lead to increased risk of subcontractor failures due to their cash
requirements for increased working capital, and also the potential for inflationary pressures in some areas. On the other
hand this should also reduce pressure on bidding margins. 
 
The Group's US private placement and committed bank facilities contain certain financial covenants, such as the ratio of
the Group's EBITDA to its net debt which needs to be less than 3.0 and the ratio of its EBITA to net borrowing costs which
needs to be in excess of 3.0. These covenants are tested on a rolling twelve-month basis as at the June and December
reporting dates. At 31 December 2014, both these covenant tests were passed as the Group had net cash and net interest
income from a covenant test perspective, so the Group's poor trading performance and consequent low level of EBIT had no
impact on these tests. 
 
The Group is forecasting to remain within its banking covenants during 2015 and has stress-tested these calculations for
reasonable possible adverse variances in trading and cash performance. The significant losses incurred in the second half
of 2014 will be included in the twelve-month EBIT for the purpose of the covenant tests at June 2015, which will reduce
headroom particularly on the EBITDA to net debt test. In considering that forecast, account was taken of the range of
mitigating actions to conserve and generate cash and EBIT. While recognising that there can be no absolute certainty, the
Directors believe that these covenant tests will be met. 
 
The Directors have acknowledged the guidance 'Going Concern and Liquidity Risk: Guidance for Directors of UK Companies
2009' published by the Financial Reporting Council in October 2009. In reviewing the future prospects of the Group, the
following factors are relevant: 
 
•   the Group has a strong order backlog 
 
•   there continues to be underlying demand in infrastructure markets in the countries in which the Group operates 
 
•   the Group had net cash balances of £219 million at 31 December 2014 and has committed bank facilities of £760 million
lasting until November 2016, which were undrawn at 31 December 2014 
 
•   the Group had an Investments portfolio valued at £1,300 million at 31 December 2014. 
 
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. 
 
To appreciate the prospects for the Group as a whole, the complete Annual Report and Accounts 2014 needs to be read. 
 
Responsibility statement 
 
This responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts 2014.
Certain parts thereof are not included within this announcement. 
 
The Directors confirm that to the best of their knowledge: 
 
·    the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the
European Union and Article 4 of the IAS Regulation, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; 
 
·    the Strategic Report includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties they face; and 
 
·    the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's performance, business model and strategy. 
 
This responsibility statement was approved by the Board of Directors on 24 March 2015 and is signed on its behalf by: 
 
D  J Magrath 
 
Chief Financial Officer 
 
P J L Zinkin 
 
Planning and Development Director 
 
ENDS 
 
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. 
 
Additional information 
 
The Annual Report and Accounts 2014 will be available on the Company's website www.balfourbeatty.com, in due course. 
 
The Company's AGM is scheduled to be held at Park Plaza Victoria, 239 Vauxhall Bridge Road, London SW1V 1EQ at 11:00 on 14
May 2015. 
 
A preference dividend of 5.375p gross (4.8375p net at current tax rate) per cumulative convertible redeemable preference
share will be paid on 1 July 2015 in respect of the six months ending 30 June 2015 to holders of these shares on the
register on 22 May 2015 by direct credit or, where no mandate has been given, by cheque posted on 30 June 2015 payable on 1
July 2015. The preference shares will be quoted ex-dividend on 21 May 2015. 
 
The Company's statutory accounts for the year ended 31 December 2014 comply with the Disclosure and Transparency Rules of
the Financial Services Authority in respect of the requirement to produce an annual financial report. Those financial
statements are the responsibility of, and were approved by the Directors, on 24 March 2015. 
 
Group Income Statement 
 
For the year ended 31 December 2014 
 
                                            2014                                                          20132,3,4  
                                     Notes  UnderlyingItems1£m  Non-underlying items (Note 8)£m  Total£m               Underlying items1£m  Non-underlyingitems(Note 8)£m  Total £m  
 Continuing operations                                                                                                                                                               
 Revenue including share of joint           8,440               353                              8,793                 8,478                374                            8,852     
 ventures and associates                                                                                                                                                             
 Share of revenue of joint ventures  15     (1,490)             (39)                             (1,529)               (1,360)              (4)                            (1,364)   
 and associates                                                                                                                                                                      
 Group revenue                              6,950               314                              7,264                 7,118                370                            7,488     
 Cost of sales                              (6,723)             (410)                            (7,133)               (6,665)              (388)                          (7,053)   
 Gross profit/(loss)                        227                 (96)                             131                   453                  (18)                           435       
 Gain on disposals of interests in   21.3   93                  -                                93                    82                   -                              82        
 investments                                                                                                                                                                         
 Amortisation of acquired intangible        -                   (11)                             (11)                  -                    (17)                           (17)      
 assets