TIDMBBY
RNS Number : 0957O
Balfour Beatty PLC
16 August 2017
BALFOUR BEATTY PLC RESULTS FOR THE HALF-YEARED 30 JUNE 2017
16 August 2017
Financial Highlights
-- Underlying profit from operations (PFO) GBP39m (2016:
GBP11m); on track for full-year expectations
-- Half-year net cash GBP161m, average net cash GBP45m - without material investment disposals
-- Underlying revenue GBP4.2bn, up 8% (1% at CER)
-- Directors' valuation of Investments portfolio up 1% at GBP1.235bn
-- Interim dividend payment up 33% to 1.2 pence per share
Operational Highlights
-- Build to Last Phase Two targets: on track for
industry-standard margins in the second half of 2018
-- Continued to simplify and focus the Group; exited Middle East
-- Order book GBP11.4bn, down 8% (6% at CER); selective bidding
delivering higher margins and reduced risk
-- Balfour Beatty VINCI joint venture awarded two HS2 contracts in July, valued at c.GBP2.5bn
-- Strong pipeline for US and UK businesses
(GBP million unless Half-year Half-year 2016(4)
otherwise specified) 2017
========================== ========================== ===========================
Underlying(3) Total Underlying(3) Total
========================== ============== ========== ============== ===========
Revenue(1,2) 4,191 4,201 3,883 3,976
Profit (loss) from
operations (PFO)(2) 39 29 11 (17)
Pre-tax profit (loss)(2) 22 12 13 (15)
Total profit (loss) 23 20 14 (11)
Profit (loss) per
share 3.3p 2.9p 2.0p (1.6p)
Dividends per share 1.2p 0.9p
========================== ============== ========== ============== ===========
HY HY 2016(4) FY 2016(4)
2017
========== ============== ===========
Order book(1,2,3) GBP11.4bn GBP11.9bn GBP12.4bn
Directors' valuation of
Investments portfolio 1,235 1,249 1,220
Net cash/(borrowings) -
recourse 161 115 173
Net cash/(borrowings) -
non-recourse (292) (388) (233)
========================================== ========== ============== ===========
Leo Quinn, Group Chief Executive, commented: "These results
demonstrate the transformation being driven by focusing Balfour
Beatty relentlessly on its chosen markets and capabilities.
Profitability is rising, backed by positive cash flow from
operations, and the Group had average net cash during the period;
all achieved without any material investment disposals. The balance
sheet remains strong, underpinned by the GBP1.2 billion Investments
portfolio.
"Under stronger leadership and much improved bidding
disciplines, the businesses are booking new orders at improved
margins and reduced risk. Our infrastructure pipeline in the US and
UK remains buoyant and the Group continues to win landmark
contracts such as the Dallas Southern Gateway and HS2.
"All of this gives us confidence that the Group remains on track
to achieve industry-standard margins in the second half of 2018,
and in line with this, we are declaring an interim dividend of 1.2
pence per share."
Notes:
(1) including share of joint ventures and associates
(2) from continuing operations
(3) before non-underlying items (Note 7)
(4) re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations
Alternative performance measures (APM), including constant
exchange rates (CER), are defined in the Measuring Our Performance
section of this document.
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 58VE,
58 Victoria Embankment, London, EC4Y 0DS at 09:00 (UK time) on 16
August 2017. There will be a live webcast of this presentation on:
www.balfourbeatty.com/webcast
2017 HALF-YEAR RESULTS ANNOUNCEMENT
-- GROUP CHIEF EXECUTIVE'S REVIEW
-- RESULTS OVERVIEW
-- DIVISIONAL OPERATING REVIEW
-- OTHER FINANCIAL ITEMS
-- MEASURING OUR PERFORMANCE
GROUP CHIEF EXECUTIVE'S REVIEW
The Group's half-year 2017 results demonstrate the strong
benefits being delivered under the Build to Last transformation
programme.
For the first six months, the Group reported an underlying
profit from operations of GBP39 million (2016: GBP11 million).
Significantly, there were material year-on-year improvements in
each earnings-based business, with Support Services reporting
profits in the range of industry-standard margins and US
Construction well-positioned to do so for the full-year. UK
Construction continues to make solid progress, reporting a profit
from operations of GBP2 million (2016: GBP69 million loss). The
Group is confident of achieving industry-standard margins in the
second half of 2018 as it continues to drive three key levers for
improved financial performance: managing the remaining historical
contracts through to completion; reducing costs across the Group;
and executing on the improved order book.
Management has continued to build a culture of strong cash
discipline and cost control. Group net cash at 30 June 2017 was
GBP161 million (2016: GBP115 million), with no material asset sales
from the Investments portfolio in the period. Average net cash in
the period was GBP45 million and the Group continues to reduce
seasonal variations in cash flow. This, coupled with the Directors'
valuation of the Investments portfolio, which stands at GBP1.235
billion (FY 2016: GBP1.220 billion), emphasises the strength of
Balfour Beatty's balance sheet.
The order book at 30 June 2017 stood at GBP11.4 billion (FY
2016: GBP12.4 billion), down 8% (6% at CER), due, in part, to
phasing and lower orders consistent with the Group's stated policy
of selective bidding, managed through the Gated Lifecycle process,
to avoid projects not aligned with the Group's capabilities or
where the risk/reward is not appropriately balanced.
In July 2017, HS2 awarded Balfour Beatty's 50:50 joint venture
(Balfour Beatty VINCI) the maximum two sections of Phase One, Lot
N1 and Lot N2 valued at GBP1.32 billion and GBP1.15 billion
respectively, in a two-part design and build contract (NEC Target
Cost C). These awards are not yet included in the order book and
are characteristic of the strong pipeline of projects in the
Group's chosen markets.
The Group exited the Middle East in the period following the
sale of its entire share of Dutco Balfour Beatty and BK Gulf. Both
businesses were sold, with no future liabilities, to its joint
venture partner in early 2017, allowing management to focus on its
chosen markets and capabilities.
As the legacy challenges are increasingly worked through,
management has been able to focus the Group on its chosen markets -
those where opportunities are greatest and have the best match with
Balfour Beatty's capabilities. The impact of upgraded leadership
and improved governance means that new contracts are coming on
stream which are bid, won, executed and monitored to the Group's
new contracting disciplines. This means that the strong foundation
created in the first 24-month self-help phase of Build to Last will
increasingly be reflected in improved operational delivery.
Build to Last
The Group transformation continues to be shaped by progress
against its Build to Last goals of Lean, Expert, Trusted and Safe,
measured by cash flow and profits 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 put Balfour Beatty on track to achieve
industry-standard margins in the second half of 2018. Having
exceeded its Phase One targets of GBP200 million cash in : GBP100
million cost out, the Group continues to exploit opportunities to
re-engineer processes to drive efficiencies and take out cost,
whilst maintaining or improving effectiveness.
As a priority, the Group continues to invest in its Expert
people, looking to recruit, train and retain the highest calibre of
workforce. Whilst the growing pipeline of major projects increases
competition for skilled workers, Balfour Beatty's ability to win
some of the most iconic and challenging engineering projects in the
industry provides an important attraction for the most talented
employees.
Skills shortages within the construction industry have been a
challenge for some time. In the UK, the decision to leave the
European Union, the weakness of sterling and uncertainty around
free movement are likely to reduce migrant labour at a time when a
growing pipeline of major projects is likely to increase demand for
skilled workers. Balfour Beatty is, therefore, focused on
maintaining the core strength of its capability, investing in the
future and improving the employee proposition.
The Group has been developing competency frameworks for key
operational job families including Project Management, Engineering
and Commercial, thus ensuring that an individual's experience and
competencies can be matched to contract risk and complexity, as
well as providing a clear career path for employees. This approach
is now 85% complete across the core Project Management job family
and 50% complete for Engineering. Following a successful pilot in
May 2017, it is now being rolled out across the wider Commercial
job family.
Balfour Beatty continues its sponsorship of The 5% Club, which
encourages employers to provide 'earn and learn' training
opportunities to equip the UK's workforce with the necessary skills
for the UK's economy to succeed.
Trusted is Balfour Beatty doing "what it says it will do". The
governance and controls which have been put in place - including
the Gated Lifecycle, the Digital Briefcase and Project on a Page -
provide management with a clear and consistent line of sight on
work which is being bid for and delivered.
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, underbidding or
accepting inappropriate levels of risk, including the cash profile
of projects.
All new UK sales opportunities and projects are now using the
Digital Briefcase, a secure web-based platform which continues to
digitise the governance and document control through all stages of
the Gated Lifecycle; a further 100 active projects have installed
this 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.
Project on a Page allows for 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 Group's use of IT and IT systems has been transformed since
the start of Build to Last, providing the ability to monitor and
intervene on projects to a degree not possible two years ago, and
is now providing the Group with a competitive advantage.
Taken together, the governance and controls now in place allow
Balfour Beatty to selectively bid business to match capability,
with reduced levels of risk; track execution all the way through
the lifecycle of a project, including the defect period; and
ultimately drive higher margins for the Construction and Support
Services businesses.
Everyone who comes into contact with Balfour Beatty's work has
the right to go home safely at the end of the day. Our Safe goal is
monitored through a combination of leading and lagging performance
indicators: in the first half of 2017, all of these indicators
continue to trend positively, with the Group Lost Time Incident
Rate (excluding international joint ventures) falling to 0.19 (FY
2016: 0.22), continuing the steady improvement since the start of
the Build to Last programme.
With a focus on safety and health by design, the Group are
increasingly using digital technology and exploring ways to move
work off site where it can be done more safely, such as
modularisation. Digital technology and virtual reality are helping
reduce and eliminate risks by supporting staff training and
identifying potential construction risk pinch points.
Markets
The Group primarily operates across three geographies (UK, US
and the Far East) and three sectors (Construction Services, Support
Services and Infrastructure Investments). As such, it is less
exposed to a downturn in a single geography or sector.
Overall, the trading environment for Balfour Beatty's chosen
markets and capabilities remains favourable.
In the UK, Government policy is helping to drive a strong
pipeline of major infrastructure projects in transport and energy.
Over the next few years, the '4Hs' - HS2 (High Speed rail), new
nuclear power stations at Hinkley Point C and Wylfa, smart
motorways for Highways England and the third runway at Heathrow
airport - will contribute to the Government's investment in
infrastructure commitment, which is targeted to rise from 0.8% to
over 1% of GDP by 2020-21.
Within the UK commercial building sector, Balfour Beatty
continues to see growth opportunities across regional markets. The
Group remains cautious on the outlook for London, where there has
been a slowdown of projects coming to market. As London has been a
highly-competitive market for some time, Balfour Beatty has chosen
to become more selective in the opportunities it pursues in this
area.
In the US, Balfour Beatty operates in specific geographies. As
the population migrates south and west, it is moving to cities,
driving urbanisation in our chosen markets. This leads directly to
increased demand for buildings and infrastructure.
Even before the 2016 Presidential election, there was a strong
market outlook for construction. In December 2015, the FAST Act
(Fixing America's Surface Transportation), a US$305 billion
transportation bill, was signed, providing guaranteed funding for a
five-year period. There are further opportunities being created,
for example with the number of state-backed infrastructure bonds
(over US$200 billion multi-state transportation bonds, US$35
billion of education bonds in California).
In Support Services, the outlook for the power transmission and
distribution market is positive. Gas and water operates in a stable
market as a cost plus business with a fee on recovery. Water is in
the middle of its asset management period (AMP) cycle, with the
next round of new contracts to be awarded in 2020. Transportation,
which includes major road and rail maintenance contracts, is
expected to remain stable.
The Infrastructure Investments business continues to see
significant opportunities for future investment in its chosen
geographic markets in the UK and North America, including any
potential development of a PF2 pipeline in the UK and the new
administration's proposed PPP infrastructure investment in the
US.
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 solid foundation on which to deliver sustainable,
profitable growth.
In Phase Two (24-month period to 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 remains confident of achieving industry-standard
margins in the second half of 2018 as it continues to drive three
key levers for improved financial performance: managing historical
contracts through to completion; reducing costs across the Group;
and executing on the improved order book.
For Infrastructure Investments, as expected, there were no
material disposals in the first half of 2017. 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.
RESULTS OVERVIEW
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 used internally to assess
business performance in its budgeting process and when determining
compensation. An explanation of the Group's financial performance
measures and appropriate reconciliations to its statutory measures
is 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 the first half of the
year, with comparatives restated accordingly.
As previously advised, UK Construction now includes Rail
Construction, with comparatives restated accordingly.
Group financial summary
Underlying revenue from continuing operations, including joint
ventures and associates (underlying revenue), increased by 8% (1%
at CER) in the first half to GBP4,191 million (2016: GBP3,883
million). Statutory revenue, which excludes joint ventures and
associates, was GBP3,544 million (2016: GBP3,323 million).
Construction Services underlying revenue was up 12% (4% at CER)
at GBP3,408 million (2016: GBP3,036 million), primarily due to
growth in the US. Support Services underlying revenue declined 5%
to GBP519 million (2016: GBP548 million) as an increase in
utilities was more than offset by lower transportation
revenues.
The increase in underlying profit from operations of GBP39
million (2016: GBP11 million) is due to the return to profitability
at Construction Services, more than offsetting the lower
Infrastructure Investments disposals compared to prior year.
Statutory profit from operations improved from a loss of GBP17
million to a profit of GBP29 million, primarily driven by the
increase in underlying profits.
Underlying profit from HY 2017 HY 2016
operations GBPm GBPm
============================== =========== ==========
US Construction 17 12
UK Construction 2 (69)
Far East 5 3
============================== =========== ==========
Construction Services 24 (54)
Support Services 16 11
Infrastructure Investments 15 70
Corporate (16) (16)
============================== =========== ==========
Total 39 11
============================== =========== ==========
Construction Services, Support Services and Infrastructure
Investments all reported underlying profit from operations in the
period. Construction Services improved from a loss of GBP54 million
in the first half of 2016, to a profit from operations of GBP24
million in 2017 as UK Construction reported a profit of GBP2
million in the period (2016: GBP69 million loss). Support Services
rebounded to more normal levels, compared to the prior year, with
underlying profit from operations of GBP16 million (2016: GBP11
million). Infrastructure Investments declined from prior year as,
in line with expectations, the Group made no material disposals in
the first half of 2017.
Net finance costs increased to GBP17 million (2016: GBP2 million
gain), primarily due to a GBP3 million foreign exchange charge in
the period, compared to a foreign exchange benefit of GBP12 million
in 2016. The taxation charge on underlying profits increased to
GBPnil million (2016: GBP7 million tax credit) due to the changing
geographic mix of profits in the period.
Underlying profit after tax for the period of GBP23 million
(2016: GBP14 million) is due to the improvement in profit from
operations, partially offset by higher finance and taxation
charges. Total statutory profit after tax for the period was GBP20
million (2016: GBP11 million loss).
As a result of phasing and the continued disciplined and
selective approach to bidding, the order book decreased 8% to
GBP11.4 billion (6% at CER) from GBP12.4 billion at December 2016.
The decrease was predominantly due to Construction Services at
GBP8.1 billion (FY 2016: GBP9.3 billion), with US Construction down
10% at CER and Far East down 18% at CER. The UK Construction order
book was down 4% at GBP2.2 billion. The Support Services order book
increased 6% to GBP3.3 billion (FY 2016: GBP3.1 billion).
Earnings per share
Underlying earnings per share from continuing operations was 3.2
pence (2016: 2.7 pence), which, along with a non-underlying loss
per share from continuing operations of 1.2 pence (2016: 4.0
pence), gave a total earnings per share for continuing operations
of 2.0 pence (2016: 1.3 pence loss). Discontinued operations per
share of 0.1 pence (2016: 0.7 pence loss) contributed to the total
underlying earnings of 3.3 pence (2016: 2.0 pence). Total earnings
per share was 2.9 pence (2016: 1.6 pence loss).
Cash flow performance
The Group had positive cash flows generated from operations of
GBP7 million in the first half (2016: GBP99 million outflow). The
GBP106 million improvement is primarily as a result of the
continuing recovery in profitability of the Group's earnings-based
businesses and the reduction in outflows of legacy contracts. It is
the first time since 2013 that Balfour Beatty has reported cash
generated from operations.
Operating cash before movements in working capital and pension
deficit payments was an inflow of GBP26 million (2016: GBP71
million outflow). Outflow from working capital was GBP9 million
(2016: GBP1 million inflow), with pension deficit payments lower at
GBP10 million (2016: GBP29 million), following the latest triennial
funding agreement with the Trustees of the Balfour Beatty Pension
Fund (BBPF).
The total cash movements in the period resulted in a reduction
of GBP12 million to the Group's net cash position, as expected, to
GBP161 million, excluding non-recourse net borrowings. The strong
operating cash performance was offset by a net outflow on investing
activities, as the Group did not make any material disposals in the
first half of 2017. Cash flows associated with the Investments
portfolio generated a net cash outflow of GBP22 million in the
first half as the Group continued to invest equity into projects
(2016: GBP37 million inflow).
Cash flow performance HY 2017 HY 2016
GBPm GBPm
================================= ========== ==========
Operating cash flows 26 (71)
Working capital (9) 1
Pension deficit payments (10) (29)
================================= ========== ==========
Cash generated from / (used in)
operations 7 (99)
================================= ========== ==========
Infrastructure Investments:
- Disposal proceeds 2 82
- New investments (24) (45)
Effects of foreign exchange 5 23
Other (2) (9)
================================= ========== ==========
Cash (outflow)/inflow (12) (48)
================================= ========== ==========
Opening net cash(1) 173 163
Movements in the year (12) (48)
================================= ========== ==========
Closing net cash(1) 161 115
================================= ========== ==========
(1) excluding infrastructure concessions (non-recourse)
Working capital
The Group has maintained the strong working capital position
from December 2016, only having an outflow of GBP9 million (2016:
GBP1 million inflow) in the first half of 2017.
Movements in the Group's due from / due to construction contract
customers balances, which reflect the net unbilled contract
position and traded profit and loss for each individual
construction contract, generated a slight working capital outflow
of GBP9 million (FY 2016: GBP36 million inflow).
Trade and other payables increased during the first half of
2017, creating a working capital inflow of GBP49 million (FY 2016:
GBP60 million outflow). Offsetting this movement was a working
capital outflow of GBP55 million (FY 2016: GBP134 million) from
trade and other receivables. The increase in both of the trade
balances was driven by the cash flow profiles of several large
projects in the US business in the first half of 2017, with the net
effect being a cash outflow of GBP6 million.
Including the impact of foreign exchange and non-operating
items, negative (i.e. favourable) working capital increased to
GBP924 million at 30 June 2017 (FY 2016: GBP894 million).
Working capital inflow/(outflow) HY 2017 HY 2016
GBPm GBPm
================================== ========== ==========
Inventory & WIP (1) 14
Construction contract
balances (9) (23)
Trade & other payables 49 (25)
Trade & other receivables (55) (10)
Provisions 7 45
================================== ========== ==========
Working capital inflow/(outflow) (9) 1
================================== ========== ==========
Net cash / borrowings
The Group's average net cash in the first half of 2017 was GBP45
million (2016: GBP68 million net borrowings). The closing net cash
position at 30 June 2017, excluding non-recourse net borrowings,
was GBP161 million (FY 2016: GBP173 million). Non-recourse net
borrowings held in wholly-owned infrastructure concessions
increased to GBP292 million (FY 2016: GBP233 million).
Dividend
The Board is declaring an interim dividend of 1.2 pence per
share, a 33% increase on prior year (0.9 pence per share). The
Board anticipates a progressive dividend policy going forward.
DIVISIONAL OPERATING REVIEWS
CONSTRUCTION SERVICES
Financial review
Construction Services continued its financial recovery, with all
geographies reporting profit from operations in the first half of
2017. In the US, both revenue and profit were up, with the PFO
margin at 0.9%. UK Construction revenue was broadly flat, whilst
profit from operations remained positive following the return to
profit during the second half of 2016. In the Far East, both
revenue and profit were up, but the order book declined as the
timing of orders is more variable.
Construction HY 2017 HY 2016(4) FY 2016(4)
Services
=================== ===================================== ======================================= ===========
Rev(1,2) PFO(2) PFO Order Rev(1,2) PFO(2) PFO Order Order
book(1,2) book(1,2) book(1,2)
===================
GBPm GBPm % GBPbn GBPm GBPm % GBPbn GBPbn
=================== ========= ======= ==== =========== ========= ======= ====== =========== ===========
US 1,952 17 0.9 4.7 1,632 12 0.7 4.7 5.5
UK 975 2 0.2 2.2 991 (69) (7.0) 2.3 2.3
Far East 481 5 1.0 1.2 413 3 0.7 1.5 1.5
=================== ========= ======= ==== =========== ========= ======= ====== =========== ===========
Underlying 3,408 24 8.1 3,036 (54) 8.5 9.3
Non-underlying(3) 10 (4) - 93 (11) 0.2 -
=================== ========= ======= ==== =========== ========= ======= ====== =========== ===========
Total 3,418 20 8.1 3,129 (65) 8.7 9.3
=================== ========= ======= ==== =========== ========= ======= ====== =========== ===========
(1) including share of joint ventures and associates
(2) from continuing operations
(3) non-underlying items (Note 7)
(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 12% to GBP3,408 million (2016:
GBP3,036 million), a 4% increase at CER, with strong growth in the
US (20% increase, 7% at CER) and the Far East (16% increase, 4% at
CER). As expected, underlying revenues in the UK fell by 2%, as
improved bidding disciplines adopted in Build to Last Phase One
resulted in lower levels of contracts in previous problem
areas.
The improvement in underlying profit at GBP24 million (2016:
GBP54 million loss) is primarily due to UK Construction. Prior year
losses were caused by historical contracts, which are still being
traded through to completion. UK Construction profit from
operations in the first half of 2017 remained positive following
the return to profit during the second half of 2016.
The order book decreased by 13% (10% at CER) due, in part, to
phasing and lower orders in the US, consistent with the Group's
stated policy of selective bidding. In the Far East, the timing of
orders is more variable around a small number of large building and
civils contracts.
The Group is continuing to manage historical 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. Overall, the positions taken are
proving adequate, reflecting, as expected, a mix of projects
successfully closed out ahead of expectation, as well as many hours
spent on others where the outcome, although disappointing, has now
been resolved.
Across the construction portfolio, there remain a small number
of long-term and complex projects where the Group has incorporated
significant judgements over contractual entitlements. The range of
potential outcomes could result in a materially positive or
negative swing to profitability and cash flow. In the UK, the
majority of these contracts are within the Major Projects business
unit and, outside the UK, they are in Hong Kong.
As these challenges reduce, new contracts are coming on stream
which are bid, won, executed and monitored to the Group's new
contracting disciplines. This means that the strong foundation
created in the first 24 months of Build to Last will increasingly
be reflected in improved operational delivery. As this feeds
through the second phase of Build to Last, management time can
increasingly be refocused onto the many opportunities in the
pipeline which play to Balfour Beatty's engineering capability.
Operational review
UK
The UK Construction business is organised into three delivery
units consisting of:
-- Major Projects: focused on complex projects and ground engineering services in key market sectors such as
transportation, heavy infrastructure and energy;
-- Regional: private and public, civil 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.
Underlying revenue fell by 2% to GBP975 million (2016: GBP991
million) as increases in Major Projects, notably highways, were
offset by lower Regional revenues in London and the North &
Midlands.
The underlying profit from the UK construction business at GBP2
million (2016: GBP69 million loss), represented solid progress from
the prior year. Prior year losses were caused by historical
contracts, which are still being traded through to completion.
The UK order book decreased by 4% to GBP2.2 billion (FY 2016:
GBP2.3 billion). The UK construction business continued to be more
selective in the work that it bids, through increased bid margin
thresholds, improved risk frameworks and better contract
governance. 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.
The business is continuing to manage historical problem
contracts through to completion. At the 2015 half-year, 89
historical contracts were identified that had a material negative
impact on profitability and cash. As at the end of June 2017, 82
(92%) of these projects were at practical completion (90% at end
December 2016), with over 75% at financial completion (over 70% at
end December 2016). Two of the remaining seven contracts are
expected to reach practical completion in 2017, with the remainder
in 2018.
In the first half of 2017, the Major Projects business
successfully opened the M3 as a 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 road
users.
At the A14 between Cambridge and Huntingdon, work has commenced
which includes widening a total of seven miles of the A14 in each
direction, a major new bypass south of Huntingdon, widening a
three-mile section of the A1 and demolishing a viaduct at
Huntingdon. At the A21 project, a key milestone was achieved with
completion of a new flyover which forms part of the major upgrade
works between Tonbridge and Pembury in Kent.
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 period and at the Thames Tideway
Tunnel work continues on the 6-kilometre 'West' section which runs
from Acton to Wandsworth.
In July, Balfour Beatty's 50:50 joint venture with VINCI was
awarded two major civil engineering lots (Lots N1 and N2), 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 Main Line tie-in respectively,
in a two-part design and build contract. The contracts will be
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, but is currently under consultation.
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, Wyfla) and airport expansion (Heathrow) will all
contribute to the Government's investment in infrastructure target,
which is forecast to rise to over 1% of GDP by 2020-21. In
addition, the highways market continues to provide good growth
opportunities following the Government's commitment of GBP15
billion to Highways England in order to deliver the first Roads
Investment Strategy.
The Regional business is organised into four regions and Balfour
Beatty Kilpatrick.
-- Regional Construction: Four regions (Scotland, North & Midlands, South and London) providing public and private
customers with locally-delivered, flexible and fully-integrated civil and building services.
-- Balfour Beatty Kilpatrick: Heavy mechanical and electrical (M&E) installations and building services.
As a result of the focus on bidding for contracts with increased
margins and more favourable contract terms, the Regional 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 where risk/reward is appropriately
balanced and it also improves the span of control as it operates
fewer sites. As a result, the total number of live jobs in the
Regional business has reduced from over 400 at December 2015 to
approximately 200 at June 2017. Over 150 of the current live
projects have been through the Gated Lifecycle process.
In the first half of 2017, the Regional business successfully
completed the Pen y Cymoedd wind farm. Europe's largest onshore
wind farm started operating at full power for the first time on 7
May 2017. Other projects successfully handed over to customers
include: 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, resulting in a new teaching block,
reception and break-out areas; and Project Zeppelin, the
construction of a cryogenic storage tank, forming part of a new
ethane import terminal facility on Teesside.
Work commenced at the Madison Tower, a 53-storey residential
building in Canary Wharf, London. Other material ongoing projects
include: the Kennedy Street student accommodation project in
Glasgow; Redwood luxury retirement village for Audley; and the
renovation and new-build scheme at No.1 Palace Street in St James',
London. At RAF Marham, a topping-out ceremony was held as the last
panel of roofing was set for the new hanger build.
The Regional business won a number of new contracts in the year
to-date. Notable new awards include a:
-- GBP179 million contract to construct 2,000 new bedrooms for Sussex University;
-- GBP29 million contract to construct new secondary schools for
the David Ross Educational Trust;
-- GBP23 million Tails Management Facility (TMF) for Urenco; and
-- GBP16 million enabling works contract by Network Rail for the
redevelopment of Glasgow Queen Street Station.
Balfour Beatty has been selected as construction partner on
Manchester University's flagship project, the Engineering Campus
development, with over GBP200 million included within ABNC. The
Group has also been selected as preferred bidder for the Wokingham
Public Road project and Caernarfon bypass.
The Regional business continues to pursue a number of
opportunities across its core aviation, defence, education, health,
residential-led neighbourhoods, student accommodation and
transportation markets.
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.
After a period of contraction, Balfour Beatty expects to increase
its market share over the next 12 to 24 months.
In the period, work commenced on the Eleclink project (in
conjunction with power transmission and distribution). In February,
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.
US
Underlying revenues in the US grew by 20% in the period (7% at
CER) to GBP2.0 billion. The order book decreased by 15% (10% at
CER) to GBP4.7 billion due, in part, to timing and as the business
continued to bid selectively on new opportunities.
The business reported an underlying profit from operations for
the period of GBP17 million (2016: GBP12 million). The half-year
underlying operating profit margin was 0.9%. The US business is
well-positioned to reach the 1-2% target range for the
full-year.
The US business continued to drive operational focus and
business simplification. The business operates in specific
geographies known as 'The Southern Smile'. This starts in the
Pacific North West, runs through California, Arizona, Texas,
Florida and up through Georgia and the Carolinas to Washington DC.
In the US, approximately 85% of revenues are generated from the
general building market, with the infrastructure market accounting
for the remaining 15%.
The US business remains focused on working with repeat
customers, in known geographies where it can deliver value. It has,
therefore, intentionally withdrawn from bidding on most stick-frame
multi-family housing, where historically it has experienced
loss-making contracts, in order to switch to better-quality
revenues in chosen markets such as office, education, hospitality,
residential and healthcare. The infrastructure business continues
to pursue design-build and alternative delivery projects in its key
rail, highway and water markets.
Notable awards in the period included: a $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 and a contract to build Whole Foods Market's
new multi-level flagship store in Midtown Atlanta.
Included in ABNC, the business has been awarded: the $260
million Harrison Medical Centre project in Seattle; the $230
million Matthews River Landing project in Miami; a $150 million
contract for an Atlanta airport hotel; a $100 million contract to
serve as construction manager for Cleburne Independent School
District's (CISD) 500,000 square foot update and expansion of
Cleburne High School (CHS); and a $70 million contract for Disney
in Orlando.
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 guaranteed
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 public-funded projects that had been slow
to come to market. There are further opportunities being created
with the number of state-backed infrastructure bonds (over US$200
billion multi-state transportation bonds, US$35 billion of
education bonds in California) and, potentially, an increase in US
private-public partnership (PPP) schemes.
Since 2014, over half of the 50 US states have increased State
Gasoline Tax. In 2017 alone, eight states have passed legislation
to increase their respective State Gasoline Tax, which will raise
around $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 $2
billion per year.
Far East
Underlying revenue in the Group's Hong Kong and Singapore 50:50
joint venture, Gammon Construction, increased by 16% (4% at CER),
due to growth in major building 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 the first
half on a number of iconic civils projects in Hong Kong, including
the West Kowloon Terminus North for the express rail link.
Underlying profit from operations in the region increased to
GBP5 million (2016: GBP3 million). In Hong Kong, there are a number
of significant contracts where the range of potential outcomes
could result in a materially positive or negative swing to
profitability.
The order book declined by 20% (18% at CER), as timing of orders
is more variable around a small number of large building and civil
contracts. In the period, Gammon was selected for a HK$2 billion
(c.GBP200 million) contract to create Hong Kong's first year-round,
all-weather water-park at Tai Shue Wan for Ocean Park Corporation
and a HK$900m (c.GBP90m) Urban Renewal Authority Project at Ma Tau
Wai Road. Since the half-year, Gammon has been selected for a HK$3
billion (c.GBP270 million) residential scheme for Great Eagle.
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 division reduced by 5% to GBP519
million (2016: GBP548 million), as an increase in utilities was
more than offset by lower transportation revenues. Underlying
profit from operations increased to GBP16 million (2016: GBP11
million), with the 3.1% (2016: 2.0%) underlying profit from
operations margin already within the Build to Last Phase Two
industry-standard margin target range of 3%-5%.
The order book increased by 6% to GBP3.3 billion (FY2016: GBP3.1
billion) as, following the delivery of a number of successful
projects, the Group has subsequently won more work in the
period.
Support Services HY 2017 HY 2016
=========================== ======== ========
Order book(1) (GBPbn) 3.3 3.3
Revenue(1) (GBPm) 519 548
=========================== ======== ========
Profit from operations(2)
(GBPm) 16 11
Non-underlying items - (12)
=========================== ======== ========
Statutory profit from
operations 16 (1)
=========================== ======== ========
Underlying margin(1)
(%) 3.1% 2.0%
=========================== ======== ========
(1) including share of joint ventures and associates
(2) before non-underlying items (Note 7)
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 3% to GBP299 million. An
increase of 14% at gas and water, as it approaches the middle of
the current AMP period, was partially offset by a 9% reduction at
power transmission and distribution. The utilities order book was
stable as the expected decline at gas and water was offset by an
increase at power transmission and distribution.
In the period, power transmission and distribution successfully
completed the Bhlaraidh-Bennuien wind farm connections project (a
combined overhead line, cabling and substations contract) near Fort
Augustus in Scotland. The business has commenced work on the
Eleclink project to install two 50-kilometre electricity cables
between France and the United Kingdom through the Channel Tunnel
and, in April, was awarded a contract by Scottish and Southern
Electricity (SSE) Networks for the design and refurbishment of five
132kV overhead lines across Southern England. The business has also
begun work on delivering a major overhead line refurbishment scheme
for National Grid in South Wales. Furthermore, in Scotland the
business will undertake the installation of a new overhead line to
connect the Dorenell wind farm for SSE Networks using a new
composite tower design, in addition to being awarded a 10-kilometre
cabling scheme for SSE in the period.
The 14% increase in gas and water underlying revenue was due to
the UK water regulatory cycle, as new contracts continue to mature
under AMP6 (2015-2020). The reduction in the order book was as
expected, given the progress of the AMP6 delivery cycle. Many water
contracts are extended over multiple AMP periods and the Group has
already started to engage on the AMP7 planning cycle.
In the period, the business commenced utility work on Heat
Networks in Gateshead, as part of a government funded initiative,
and continued to construct a new water treatment facility for South
West Water. The delivery of key and complex schemes across the
business remains on track. Gas and water expect a peak volume year
in 2017, as it represents the middle of the current AMP6 cycle.
Underlying transportation revenues reduced by 14% to GBP220
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 13%, due to increased order
intake in highways and from local authorities.
INFRASTRUCTURE INVESTMENTS
Financial review
The profit from operations at GBP15 million (2016: GBP70
million) was lower than the prior year, predominantly due to a
reduction in profit on disposals. Pre-disposals operating profit
decreased slightly to GBP15 million (2016: GBP18 million) due to
loss of profit from previous disposals. Net interest income also
decreased to GBP11 million (2016: GBP15 million) as a result of
loss on profit on previous disposals.
In March 2017, the Group highlighted that there were not
expected to be material disposals in the first half of 2017. This
has been the case in the year to-date, noting that during Phase Two
of Build to Last, the Group will continue to sell investment assets
timed to maximise value to shareholders.
Infrastructure Investments HY 2017 HY 2016
GBPm GBPm
============================= ======== ========
Pre-disposals operating
profit(1) 15 18
Profit on disposals(1) - 52
============================= ======== ========
Profit from operations(1) 15 70
Net interest income from
PPP concessions(2) 11 15
============================= ======== ========
Profit before tax(1) 26 85
Non-underlying items (3) (2)
============================= ======== ========
Statutory profit before
tax 23 83
============================= ======== ========
(1) before non-underlying items (Note 7)
(2) 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
The Infrastructure Investments business had a period of
consolidation in the first half of 2017, with only one new project
and one disposal in the period.
FY 2016 projects New wins in period Projects sold HY 2017 projects
================================== ================= =================== ============== =================
University/student accommodation 10 - - 10
OFTO 3 - - 3
Healthcare 6 - - 6
Military housing 21 - - 21
Transport 13 - - 13
Private rented and regeneration 8 1 (1) 8
Energy 4 - - 4
Other 4 - - 4
================================== ================= =================== ============== =================
Total 69(1) 1 (1) 69(2)
================================== ================= =================== ============== =================
(1) five projects included had not yet reached financial
close
(2) four projects included have not yet reached financial
close
In the private rented and regeneration sector, the North America
business successfully acquired a 15% stake in a private rental
housing portfolio covering three assets in Atlanta, Georgia,
totalling 882 units and encompassing 91 acres. Balfour Beatty
Communities will perform property management services for the
properties, leveraging its existing capabilities. During the
period, the North American business also disposed of its interests
in one residential housing project at Carmendy, Florida. Including
Military Housing, the Group now has 55,000 units under
management.
Financial close was reached on one project at Sussex University
for new student accommodation on the University's campus which will
provide bedrooms for 2,117 students, together with new student
amenities and a Students' Union building. 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. Four
projects have not yet reached financial close.
The Infrastructure Investments business continues to see
significant opportunities for future investment in its chosen
geographic markets in the UK and North America, including any
potential development of a PF2 pipeline in the UK and the new
administration's proposed PPP infrastructure investment in the
US.
Directors' valuation
During the first six months of the year, the Directors'
valuation increased to GBP1,235 million (2016: GBP1,220 million).
The size of the portfolio was maintained at 69 projects, with the
increase in valuation due to the unwind of the discount partially
offset by negative exchange rate movements. The Group continued to
make investments, with GBP24 million (2016: GBP45 million) invested
in new and existing projects. Cash yield from distributions
amounted to GBP26 million (2016: GBP43 million).
The methodology used for the Directors' valuation is unchanged,
producing a valuation that more closely 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 attitudes. 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 accounts, 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 remains strong and the Group will continue to sell
investment assets timed to maximise value to shareholders. Investor
appetite for yield in the ongoing, low interest rate environment
continues unabated and pricing in the secondary market is,
therefore, expected to remain strong for the foreseeable
future.
Movement in Directors' valuation
Operational
performance
Equity Distributions Disposal Unwind of New project (incl. FX
HY 2016 invested received proceeds discount wins movements) HY 2017
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ======= ============ ============== ============ ============ ============ ============ =======
UK 707 3 (9) - 26 - (5) 722
North America 513 21 (17) (2) 21 2 (25) 513
============== ======= ============ ============== ============ ============ ============ ============ =======
Total 1,220 24 (26) (2) 47 2 (30) 1,235
============== ======= ============ ============== ============ ============ ============ ============ =======
UK portfolio
In the first half of 2017, GBP3 million of equity investment was
made in projects across the portfolio. Operational performance
movements resulted in a GBP5 million reduction in value, which
reflected updated forecast assumptions across a number of projects,
the most significant of which related to a change in the timing of
lifecycle cost savings.
Discount rates applied to the UK portfolio range between 7% and
14%, depending on project risk and maturity. The implied weighted
average discount rate for the UK portfolio remains constant at 8.3%
(2016: 8.3%). A 1% change in discount rate would change the value
of the UK portfolio by approximately GBP79 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 increased 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.
The UK Government has announced that the previously-published
draft legislation in response to the OECD's recommendations on the
tax deductibility of interest expense will be reintroduced into
Parliament later this year and take retrospective effect from 1
April 2017. The proposals continue to preserve the concept of the
public benefit exemption put forward by the OECD and also include
other helpful measures to protect public infrastructure projects
such as PPPs. The draft legislation is complex and remains subject
to change. The Group's assessment, which is subject to further
review as the legislation is finalised, remains that the impact on
the Directors' valuation will not be material. Balfour Beatty
continues to engage with the UK Government and Tax Authorities to
clarify and evaluate the impact of the draft legislation.
North America portfolio
Investment of GBP21 million was made in the period on three
existing projects: two hospitals in Canada and the student
accommodation project at the University of Texas, in addition to
the stake acquired in a private rental housing portfolio in
Atlanta. Carmendy Square, Florida, was sold in the period,
generating a net GBP2 million in proceeds.
Operational performance movements resulted in a GBP25 million
decrease in the value of the portfolio, nearly all of which was due
to the strengthening of sterling against the US dollar.
Discount rates applied to the North America portfolio range
between 7.5% and 10%. The implied weighted average discount rate is
8.0% (2016: 8.2%). The fall in weighted average discount is due to
a number of investments moving from the construction phase into the
operations phase. A 1% change in the discount rate would change the
value of the North American portfolio by approximately GBP71
million.
OTHER FINANCIAL ITEMS
Non-underlying items
The Group 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 from continuing operations before tax of
GBP10 million were charged to the income statement in the first
half of 2017 (2016: GBP28 million). Items included GBP5 million of
restructuring costs incurred relating to the Group's Build to Last
transformation programme. A further GBP5 million was charged to
non-underlying relating to the amortisation of acquired intangible
assets.
Taxation
The Group's underlying loss before tax from continuing
operations, excluding share of joint ventures, of GBP8 million
(2016: GBP13 million) resulted in an underlying tax charge of
GBPnil (2016: GBP7 million credit). The tax position principally
arises due to a tax charge in the US offset by a tax credit in the
UK. Under IFRS tax accounting rules, these figures have been
calculated without taking account of the proposed UK law changes to
restrict the offset of brought forward losses to 50% of current
year profits and to limit the ability to offset interest expense
for tax purposes. These proposals will be re-introduced into
Parliament in the autumn and, assuming they are passed as currently
intended, they will have retrospective effect to 1 April 2017, and
hence, impact our 2017 full-year results. Therefore, it is expected
that the second half 2017 taxation charge will be higher than the
first half.
Discontinued operations
The Group has presented its 49% interests in its Middle East
joint ventures as discontinued operations in the first-half of the
year, with comparatives restated accordingly. Following the
completion of the sale in March 2017, the Group recorded a
non-underlying gain on disposal of GBP5 million in the first-half
of the year.
Pension
The Group's balance sheet includes aggregate deficits of GBP208
million (FY 2016: GBP231 million) for pension schemes. The decrease
in pension deficit in the period is due to a small reduction in
life expectancy based on the latest mortality studies, together
with cash deficit payments made by the company, partially offset by
a small reduction in corporate bond yields. In the largest scheme,
Balfour Beatty Pension Fund, the programme of hedging against
changes in interest rates and inflation projections has continued
to decrease volatility and provide significant benefit.
Borrowing facilities
Balfour Beatty's committed borrowing facility totals GBP400
million. The purpose of this syndicated revolving credit facility
is to provide liquidity from a set of core relationship banks to
support ongoing activities. The Group completed its refinancing in
December 2015 with the facility extending through to 2018. In
November 2016, GBP375 million of the facility was extended until
December 2019. A further one-year extension, through to 2020, is
available, subject to bank approval. At 30 June 2017, this facility
was undrawn.
Responsibility statement
We confirm that to the best of our knowledge:
-- the condensed Group financial statements have been prepared
in accordance with IAS 34 Interim Financial Reporting;
-- the interim management report, as required by Disclosure and
Transparency Rules 4.2.7R and 4.2.8R, includes a fair review
of:
o important events during the half-year ended 30 June 2017 and
their impact on the condensed Group financial statements;
o a description of the principal risks and uncertainties for the
second half of the year; and
o related parties' transactions and changes therein.
On behalf of the Board
Leo Quinn Phil Harrison
Group Chief Executive Chief Financial Officer
15 August 2017
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.
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 its half-year statement with the aim of providing
transparency and clarity on the measures adopted internally to
assess performance.
Throughout this report, the Group has presented performance
measures which are considered most relevant to the Group and are
used to measure the Group's performance on a day-to-day basis.
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 the half-year financial
statements in their entirety.
Performance measures used to assess the Group's operations in
the period
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
within 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 half-year
financial statements 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 the
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 112 to 118 of the Group's
2016 Annual Report and Accounts.
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 (refer to section (b)).
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 assist 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
- 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 and certain legacy ES contracts have
been treated as non-underlying items as the Group is committed to
exiting these parts of the business.
Further details of these non-underlying items are provided in
Note 7.
A reconciliation has been provided below to show how the Group's
statutory results are adjusted to exclude significant items that
are non-recurring and their impact on its statutory financial
information, both as a whole and in respect of specific line
items.
Reconciliation of the half-year ended 30 June 2017 statutory
results to performance measures
2017 first half Build 2017 first half
unaudited to Last unaudited
statutory restructuring Intangible Results of Rail performance
results costs amortisation Germany Other measures
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Continuing
operations
----------------- ------------- ------------------ -----
Revenue including
share of joint
ventures and
associates
(performance) 4,201 - - (10) - 4,191
Share of revenue
of joint ventures
and associates (657) - - 2 - (655)
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Group revenue
(statutory) 3,544 - - (8) - 3,536
Cost of sales (3,376) - - 8 - (3,368)
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Gross profit 168 - - - - 168
Amortisation of
acquired
intangible assets (5) - 5 - - -
Other net
operating
expenses (164) 5 - - - (159)
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Group operating
profit/(loss) (1) 5 5 - - 9
Share of results
of joint ventures
and associates 30 - - - - 30
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Profit/(loss) from
operations 29 5 5 - - 39
Investment income 20 - - - - 20
Finance costs (37) - - - - (37)
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Profit/(loss)
before taxation 12 5 5 - - 22
Taxation 2 - (2) - - -
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Profit for the
period from
continuing
operations 14 5 3 - - 22
Profit for the
period from
discontinued
operations 6 - - - (5) 1
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Profit for the
period 20 5 3 - (5) 23
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Reconciliation of half-year ended 30 June 2017 statutory results
to performance measures by segment
2017 first half Build 2017 first half
unaudited to Last unaudited
statutory restructuring Intangible Results of Rail performance
Profit/(loss) from results costs amortisation Germany Other measures
operations GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Segment
----------------- ------------- ------------------ -----
Construction
Services 20 2 2 - - 24
Support Services 16 - - - - 16
Infrastructure
Investments 12 - 3 - - 15
Corporate
activities (19) 3 - - - (16)
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Total 29 5 5 - - 39
------------------ ----------------- ----------------- ------------- ------------------ ----- ------------------
Reconciliation of the half-year ended 1 July 2016 statutory
results to performance measures
2016 2016
first half first half
unaudited Build unaudited
statutory to Last Provision Results performance
results(+) restructuring Intangible increases/ Gains on Results of Rail measures(+)
costs amortisation (releases) disposal of ES Germany Other
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Continuing
operations
------------- ------------ ---------- --------- ------- --------- -----
Revenue
including
share of
joint
ventures and
associates
(performance) 3,976 - - - - (5) (88) - 3,883
Share of
revenue of
joint
ventures and
associates (653) - - - - - 4 - (649)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Group revenue
(statutory) 3,323 - - - - (5) (84) - 3,234
Cost of sales (3,225) - - - - 9 77 - (3,139)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Gross profit 98 - - - - 4 (7) - 95
Gain on
disposals of
interests in
investments 52 - - - - - - - 52
Amortisation
of acquired
intangible
assets (4) - 4 - - - - - -
Other net
operating
expenses (189) 9 - 16 (6) - 6 2 (162)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Group
operating
loss (43) 9 4 16 (6) 4 (1) 2 (15)
Share of
results of
joint
ventures and
associates 26 - - - - - - - 26
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
(Loss)/profit
from
operations (17) 9 4 16 (6) 4 (1) 2 11
Investment
income 40 - - - - - - - 40
Finance costs (38) - - - - - - - (38)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
(Loss)/profit
before
taxation (15) 9 4 16 (6) 4 (1) 2 13
Taxation 8 (1) (1) - - (1) 2 - 7
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
(Loss)/profit
for the
period from
continuing
operations (7) 8 3 16 (6) 3 1 2 20
Profit for the
period from
discontinued
operations (4) - - - (2) - - - (6)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit for the
period (11) 8 3 16 (8) 3 1 2 14
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
(+) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Reconciliation of the half-year ended 1 July 2016 statutory
results to performance measures by segment
2016 2016
first half Build first half
statutory to Last Provision Results performance
results(+) restructuring Intangible increases/ Gains on Results of Rail measures(+)
Profit/(loss) costs amortisation (releases) disposal of ES Germany Other
from operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
Segment
------------- ------------ ---------- --------- ------- -------- -----
Construction
Services(+) (65) 5 1 5 (3) 4 (1) - (54)
Support
Services (1) 1 - 11 - - - - 11
Infrastructure
Investments 68 - 3 - (3) - - 2 70
Corporate
activities (19) 3 - - - - - - (16)
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
Total (17) 9 4 16 (6) 4 (1) 2 11
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
(+) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Reconciliation of the year ended 31 December 2016 statutory
results to performance measures
2016 2016
audited Build performance
statutory to Last Provision Results audited
results(+) restructuring Intangible increases/ Gains on Results of Rail measures(+)
costs amortisation (releases) disposal of ES Germany Other
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
(loss)/profit (41) 14 9 31 (8) 6 (1) 2 12
Share of
results of
joint
ventures and
associates 58 - - (1) - - - - 57
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit from
operations 17 14 9 30 (8) 6 (1) 2 69
Investment
income 75 - - - - - - - 75
Finance costs (82) - - - - - - - (82)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit before
taxation 10 14 9 30 (8) 6 (1) 2 62
Taxation (8) (4) (3) - - - 3 - (12)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit for the
year from
continuing
operations 2 10 6 30 (8) 6 2 2 50
Profit/(loss)
for the year
from
discontinued
operations 22 - - - (24) - - - (2)
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
Profit for the
year 24 10 6 30 (32) 6 2 2 48
-------------- ---------- ------------- ------------ ---------- --------- ------- --------- ----- -----------
(+) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Reconciliation of the year ended 31 December 2016 statutory
results to performance measures by segment
2016 Build 2016
statutory to Last Provision Results performance
results(+) restructuring Intangible increases/ Gains on Results of Rail measures(+)
Profit/(loss) costs amortisation (releases) disposal of ES Germany Other
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
--------------- ---------- ------------- ------------ ---------- --------- ------- -------- ----- -----------
(+) 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 2016
first half first half year
unaudited unaudited audited
GBPm GBPm GBPm
------------------------------------------------- ----------- ----------- --------
Underlying profit from operations
(section (b) and Note 3) 15 70 89
Add: Subordinated debt interest receivable(^) 12 15 29
Interest receivable on PPP financial
assets(^) 5 12 21
Non-recourse borrowings finance
Less: cost(^) (6) (12) (24)
------ ----------------------------------------- ----------- ----------- --------
Underlying profit before tax (Performance) 26 85 115
Non-underlying items (section (b)
and Note 7) (3) (2) (6)
------------------------------------------------- ----------- ----------- --------
Statutory profit before tax 23 83 109
------------------------------------------------- ----------- ----------- --------
(^) Refer to Note 5 and Note 6.
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 EPS to performance EPS
2016 2016
2017 first half unaudited(+) year
first half unaudited GBPm audited(+)
GBPm GBPm
-------------------------------------------------------- --------------------- ------------------------ -----------
Statutory earnings/(loss) per ordinary share 2.9 (1.6) 3.5
Less: earnings/loss from discontinued operations (0.9) 0.3 (3.3)
-------------------------------------------------------- --------------------- ------------------------ -----------
Statutory earnings/(loss) per ordinary share from
continuing operations 2.0 (1.3) 0.2
Amortisation of acquired intangible assets 0.4 0.5 0.9
Other non-underlying items 0.8 3.5 6.1
-------------------------------------------------------- --------------------- ------------------------ -----------
Underlying earnings per ordinary share from continuing
operations (performance) 3.2 2.7 7.2
-------------------------------------------------------- --------------------- ------------------------ -----------
(+) 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
period, 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 earned only 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. This is excluded
from the Group's measure of net debt in line with 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 debt/cash reconciliation
2017 2016
first 2017 first 2016 2016 2016
half first half half first half year year
unaudited unaudited unaudited unaudited audited audited
statutory Adjustment performance statutory Adjustment performance statutory Adjustment performance
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- --------- ---------- ----------- --------- ---------- ----------- --------- ---------- -----------
Total cash within the
Group 843 (154) 689 728 (25) 703 769 (7) 762
Cash and cash
equivalents
--------- ---------- ----------- --------- ---------- ----------- --------- ---------- -----------
- infrastructure
concessions 154 (154) - 25 (25) - 7 (7) -
- other 689 - 689 703 - 703 762 - 762
--------- ---------- ----------- --------- ---------- ----------- --------- ---------- -----------
Total debt within the
Group (1,075) 547 (528) (1,100) 512 (588) (929) 340 (589)
--------- ---------- ----------- --------- ---------- ----------- --------- ---------- -----------
Borrowings -
non-recourse loans (446) 446 - (413) 413 - (240) 240 -
-
other (528) - (528) (588) - (588) (589) - (589)
Liability component
of preference shares (101) 101 - (99) 99 - (100) 100 -
--------------------- --------- ---------- ----------- --------- ---------- ----------- --------- ---------- -----------
Net (debt)/cash (232) 393 161 (372) 487 115 (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 GBP45m (2016: first half average net borrowings of GBP68m;
full-year average net borrowings of GBP46m).
Using a statutory measure (inclusive of non-recourse elements
and the liability component of the Company's preference shares)
gives average net debt of GBP196m (2016: first half average net
borrowings of GBP336m; full-year average net borrowings of
GBP230m).
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 GBP1.2bn
at the half-year (2016: first half GBP1.2bn); full-year GBP1.2bn).
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.
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 2.
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
---------------------------
Continuing operations UK US Gammon Total Support Services Infrastructure Investments Total
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
Revenue (GBPm)
----- ----- ------
2017 first half statutory 980 1,924 - 2,904 504 136 3,544
2016 first half statutory(+) 1,080 1,578 - 2,658 535 130 3,323
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
Statutory growth (%) (9)% 22% - 9% (6)% 5% 7%
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
2017 first half performance(^) 975 1,952 481 3,408 519 264 4,191
2016 first half performance
retranslated(^) 991 1,818 461 3,270 548 315 4,133
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
Performance CER growth (%) (2)% 7% 4% 4% (5)% (16)% 1%
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
Order book (GBPbn)
----- ----- ------
2017 first-half 2.2 4.7 1.2 8.1 3.3 - 11.4
2016 year(+) 2.3 5.5 1.5 9.3 3.1 - 12.4
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
Growth (%) (4)% (15)% (20)% (13)% 6% - (8)%
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
2017 first-half 2.2 4.7 1.2 8.1 3.3 - 11.4
2016 year retranslated 2.3 5.2 1.5 9.0 3.1 - 12.1
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
CER growth (%) (4)% (10)% (18)% (10)% 6% - (6)%
------------------------------------ ----- ----- ------ ----- ---------------- -------------------------- -----
(^) Performance revenue is underlying revenue from continuing
operations including share of joint ventures and associates as set
out in section (e).
(+) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
INDEPENT REVIEW REPORT TO BALFOUR BEATTY PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises the Condensed Group
Income Statement, the Condensed Group Statement of Comprehensive
Income, the Condensed Group Statement of Changes in Equity, the
Condensed Group Balance Sheet, the Condensed Group Statement of
Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1.1, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Stephen Wardell
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square,
London E14 5GL
15 August 2017
Condensed Group Income Statement
For the half-year ended 30 June 2017
2017 first half unaudited 2016 first half unaudited(2) 2016 year audited(2)
----------------------------------- ---------------------------------------- --------------------------------------
Non-underlying Non-underlying Non-underlying
Underlying items Underlying items Underlying items
items(1) (Note 7) Total items(1) (Note 7) Total items(1) (Note 7) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Continuing
operations
---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Revenue
including share
of joint
ventures and
associates 4,191 10 4,201 3,883 93 3,976 8,215 153 8,368
Share of revenue
of joint
ventures and
associates 4.1 (655) (2) (657) (649) (4) (653) (1,433) (12) (1,445)
---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Group revenue 3,536 8 3,544 3,234 89 3,323 6,782 141 6,923
Cost of sales (3,368) (8) (3,376) (3,139) (86) (3,225) (6,503) (136) (6,639)
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Gross profit 168 - 168 95 3 98 279 5 284
Gain on
disposals of
interests in
investments - - - 52 - 52 65 - 65
Amortisation of
acquired
intangible
assets - (5) (5) - (4) (4) - (9) (9)
Other net
operating
expenses (159) (5) (164) (162) (27) (189) (332) (49) (381)
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Group operating
profit/(loss) 9 (10) (1) (15) (28) (43) 12 (53) (41)
Share of results
of joint
ventures and
associates 4.1 30 - 30 26 - 26 57 1 58
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Profit/(loss)
from operations 39 (10) 29 11 (28) (17) 69 (52) 17
Investment
income 5 20 - 20 40 - 40 75 - 75
Finance costs 6 (37) - (37) (38) - (38) (82) - (82)
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Profit/(loss)
before taxation 22 (10) 12 13 (28) (15) 62 (52) 10
Taxation 8 - 2 2 7 1 8 (12) 4 (8)
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Profit/(loss)
for the period
from continuing
operations 22 (8) 14 20 (27) (7) 50 (48) 2
Profit/(loss)
for the period
from
discontinued
operations 1 5 6 (6) 2 (4) (2) 24 22
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Profit/(loss)
for the period 23 (3) 20 14 (25) (11) 48 (24) 24
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Attributable to
Equity holders 23 (3) 20 14 (25) (11) 48 (24) 24
Non-controlling
interests - - - - - - - - -
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
Profit/(loss)
for the period 23 (3) 20 14 (25) (11) 48 (24) 24
---------------- ----- ---------- -------------- ------- ---------- -------------- ------------ ------------ -------------- --------
(1) Before non-underlying items (Note 7).
(2) Re-presented to classify the Group's 49% interests in Dutco Balfour Beatty LLC and BK
Gulf LLC as discontinued operations.
2017 2016 2016
first half first half year
unaudited unaudited(2) audited(2)
Notes pence pence pence
------------------------------------------------------------------------ -------------- ------------ ------------ ------------------------
Basic earnings/(loss) per ordinary share
- continuing operations 9 2.0 (1.3) 0.2
- discontinued operations 9 0.9 (0.3) 3.3
------------------------------------------------------------------------ -------------- ------------ ------------ ------------------------
9 2.9 (1.6) 3.5
------------------------------------------------------------------------ -------------- ------------ ------------ ------------------------
Diluted earnings/(loss) per ordinary share
- continuing operations 9 2.0 (1.3) 0.2
- discontinued operations 9 0.9 (0.3) 3.3
------------------------------------------------------------------------ -------------- ------------ ------------ ------------------------
9 2.9 (1.6) 3.5
------------------------------------------------------------------------ -------------- ------------ ------------ ------------------------
Dividends per ordinary share proposed for the period 10 1.2 0.9 2.7
------------------------------------------------------------------------ -------------- ------------ ------------ ------------------------
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Condensed Group Statement of Comprehensive Income
For the half-year ended 30 June 2017
2017 first 2016 first
half unaudited half unaudited 2016 year audited
------------------------ ------------------------ ------------------------
Share Share Share
of of of
joint joint joint
ventures ventures ventures
and and and
Group associates Total Group associates Total Group associates Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- ----- ---------- ----- ----- ---------- ----- ----- ---------- -----
(Loss)/profit for
the period (11) 31 20 (31) 20 (11) (32) 56 24
Other comprehensive
(loss)/income for
the period
Items which will
not subsequently
be reclassified to
the income statement
----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Actuarial gains/(losses)
on retirement benefit
net liabilities 14 - 14 22 - 22 (121) 1 (120)
Tax on above 4 - 4 (4) - (4) 2 - 2
----- ---------- ----- ----- ---------- ----- ----- ---------- -----
18 - 18 18 - 18 (119) 1 (118)
----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Items which will
subsequently be reclassified
to the income statement
----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Currency translation
differences (9) (10) (19) 42 11 53 51 41 92
Fair value PPP financial
revaluations - assets (2) (20) (22) 22 20 42 27 10 37
cash flow
- hedges 5 8 13 (36) (86) (122) (16) (92) (108)
Available-for-sale
investments
in mutual
- funds 2 - 2 - - - 1 - 1
Recycling of revaluation
reserves to the income
statement on disposal(^) - - - - 9 9 (17) 9 (8)
Tax on above (1) 2 1 4 11 15 (1) 15 14
----- ---------- ----- ----- ---------- ----- ----- ---------- -----
(5) (20) (25) 32 (35) (3) 45 (17) 28
----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Total other comprehensive
income/(loss) for
the period 13 (20) (7) 50 (35) 15 (74) (16) (90)
--------------------------------------- ----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Total comprehensive
income/(loss) for
the period 2 11 13 19 (15) 4 (106) 40 (66)
--------------------------------------- ----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Attributable to
Equity holders 13 4 (67)
Non-controlling interests - - 1
--------------------------------------- ----- ---------- ----- ----- ---------- ----- ----- ---------- -----
Total comprehensive
income/(loss) for
the period 13 4 (66)
--------------------------------------- ----- ---------- ----- ----- ---------- ----- ----- ---------- -----
(^) Recycling of revaluation reserves to the income statement on
disposal has no associated tax effect.
Condensed Group Statement of Changes in Equity
For the half-year ended 30 June 2017
Other reserves
----------------------------------------------------
Equity
Share component
of of
joint preference
ventures' shares
Called-up Share and and PPP Currency Non-
share premium Special associates' convertible Hedging financial translation Retained controlling
capital account reserve reserves bonds reserves assets reserve Other profits interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- --------- ------- ------- ----------- ----------- -------- --------- ----------- ----- -------- ----------- -----
At 1 January 2016
audited 345 65 22 196 44 (58) 58 87 13 54 4 830
Total
comprehensive
(expense)/income
for the period - - - (15) - (30) 19 42 - (12) - 4
Joint ventures'
and associates'
dividends - - - (21) - - - - - 21 - -
Movements
relating
to share-based
payments - - - - - - - - 1 (1) - -
Reserve transfers
relating to
disposals - - - (10) - - - - - 10 - -
At 1 July 2016 345 65 22 150 44 (88) 77 129 14 72 4 834
Total
comprehensive
income/(expense)
for the period - - - 55 - 58 (52) 6 1 (139) 1 (70)
Joint ventures'
and associates'
dividends - - - (22) - - - - - 22 - -
Ordinary
dividends - - - - - - - - - (6) - (6)
Movements
relating
to share-based
payments - - - - - - - - 2 2 - 4
Reserve transfers
relating to
disposals - - - 1 - - - - - (1) - -
At 31 December
2016 345 65 22 184 44 (30) 25 135 17 (50) 5 762
Total
comprehensive
income/(expense)
for the period - - - 11 - 3 (2) (9) 1 9 - 13
Joint ventures'
and associates'
dividends - - - (27) - - - - - 27 - -
Ordinary
dividends - - - - - - - - - (12) - (12)
Movements
relating
to share-based
payments - - - - - - - - - 2 - 2
Reserve transfers
relating to
disposals - - - 13 - - - - - (13) - -
At 30 June 2017 345 65 22 181 44 (27) 23 126 18 (37) 5 765
----------------- --------- ------- ------- ----------- ----------- -------- --------- ----------- ----- -------- ----------- -------
Condensed Group Balance Sheet
At 30 June 2017
2017 2016
first first 2016
half half year
unaudited unaudited(3) audited
Notes GBPm GBPm GBPm
------------------------------------------------ ----- ---------- ------------- --------
Non-current assets
Intangible
assets - goodwill 11 911 896 937
- other 267 226 225
Property, plant and equipment(3) 173 174 181
Investment properties(3) 47 23 36
Investments in joint ventures and
associates 4.2 630 583 628
Investments 43 45 45
PPP financial assets 14 159 432 163
Trade and other receivables 12 217 146 180
Retirement benefit assets 15 - 27 -
Deferred tax assets 68 70 54
Derivative financial instruments 20 2 3 3
------------------------------------------------ ----- ---------- ------------- --------
2,517 2,625 2,452
------------------------------------------------ ----- ---------- ------------- --------
Current assets
Inventories and non-construction
work in progress 95 127 101
Due from construction contract customers 384 382 380
Trade and other receivables 12 1,043 994 1,066
Cash and cash
equivalents - infrastructure concessions 17.2 154 25 7
- other 17.2 689 703 762
Current tax assets - - 8
Derivative financial instruments 20 3 1 1
------------------------------------------------ ----- ---------- ------------- --------
2,368 2,232 2,325
Assets held for sale - 56 -
------------------------------------------------ ----- ---------- ------------- --------
2,368 2,288 2,325
------------------------------------------------ ----- ---------- ------------- --------
Total assets 4,885 4,913 4,777
------------------------------------------------ ----- ---------- ------------- --------
Current liabilities
Due to construction contract customers (531) (476) (542)
Trade and other payables 13 (1,746) (1,741) (1,752)
Provisions (169) (165) (147)
Borrowings - non-recourse loans 17.3 (45) (15) (47)
- other 17.3 (40) (77) (56)
Current tax liabilities (9) (26) (18)
Derivative financial instruments 20 (4) (14) (6)
------------------------------------------------ ----- ---------- ------------- --------
(2,544) (2,514) (2,568)
Liabilities held for sale - (40) -
------------------------------------------------ ----- ---------- ------------- --------
(2,544) (2,554) (2,568)
------------------------------------------------ ----- ---------- ------------- --------
Non-current liabilities
Trade and other payables 13 (166) (132) (151)
Provisions (96) (98) (126)
Borrowings - non-recourse loans 17.3 (401) (398) (193)
- other 17.3 (488) (511) (533)
Liability component of preference
shares (101) (99) (100)
Retirement benefit liabilities 15 (208) (123) (231)
Deferred tax liabilities (85) (63) (80)
Derivative financial instruments 20 (31) (101) (33)
------------------------------------------------ ----- ---------- ------------- --------
(1,576) (1,525) (1,447)
------------------------------------------------ ----- ---------- ------------- --------
Total liabilities (4,120) (4,079) (4,015)
------------------------------------------------ ----- ---------- ------------- --------
Net assets 765 834 762
------------------------------------------------ ----- ---------- ------------- --------
Equity
Called-up share capital 345 345 345
Share premium account 65 65 65
Special reserve 22 22 22
Share of joint ventures' and associates'
reserves 181 150 184
Other reserves 184 176 191
Retained profits (37) 72 (50)
------------------------------------------------ ----- ---------- ------------- --------
Equity attributable to equity holders
of the parent 760 830 757
Non-controlling interests 5 4 5
------------------------------------------------ ----- ---------- ------------- --------
Total equity 765 834 762
------------------------------------------------ ----- ---------- ------------- --------
(3) 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.
Condensed Group Statement of Cash Flows
For the half-year ended 30 June 2017
2017 2016
first first 2016
half half year
unaudited unaudited audited(#)
Notes GBPm GBPm GBPm
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
Cash flows generated from/(used in)
in operating activities
Cash generated from/(used in):
- continuing
operations - underlying(1) 17.1 21 (93) (132)
- non-underlying 17.1 (14) (6) (15)
- discontinued operations 17.1 - - -
Income taxes received (1) 8 11
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
Net cash generated from/(used in) operating
activities 6 (91) (136)
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
Cash flows (used in)/generated from
investing activities
Dividends - joint ventures and associates
from: - infrastructure concessions 8 13 20
- joint ventures and associates
- other 19 8 23
Interest received - infrastructure
concessions 2 15 19
Interest received - other(#) 4 5 13
Acquisition of businesses, net of cash
and cash equivalents acquired 18.1 - (3) (6)
Purchases - intangible assets - infrastructure
of: concessions (56) (5) (6)
- intangible assets - other (3) - (5)
- property, plant and equipment
- infrastructure concessions(3) - (10) (14)
- property, plant and equipment
- other (13) (15) (27)
- investment properties(3) (6) (19) (32)
- other investments (3) (1) (1)
Investments in and long-term loans
to joint ventures and associates (21) (24) (37)
Loans repaid from joint ventures and
associates - 4 -
PPP financial assets cash expenditure 14 (2) (14) (31)
PPP financial assets cash receipts 14 9 18 39
Disposals - investments in joint ventures
of: - infrastructure concessions - 33 155
- investments in joint ventures
- other 18.2 4 49 2
* subsidiaries net of cash disposed, separation a
nd
transaction costs - infrastructure concessions - - 17
* subsidiaries net of cash disposed, separation a
nd
transaction costs - other - 2 14
- property, plant and equipment 3 5 9
- other investments 3 6 5
------------------------------------------------------ ----- ---------- ---------- -----------
Net cash (used in)/generated from investing
activities (52) 67 157
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
Cash flows from/(used in) financing
activities
Purchase of ordinary shares 16 (1) (4) (4)
Proceeds - other new loans - infrastructure
from: concessions 17.4 210 36 65
- other new loans - other 17.4 - 75 52
Repayments
of: - loans - infrastructure concessions 17.4 (2) (12) (25)
- loans - other 17.4 (50) - (1)
Ordinary dividends paid - - (6)
Interest paid - infrastructure concessions (7) (12) (24)
Interest paid - other(#) (15) (22) (41)
Preference dividends paid (6) (11) (12)
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
Net cash from financing activities 129 50 4
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
Net increase in cash and cash equivalents 83 26 25
Effects of exchange rate changes (10) 50 80
Cash and cash equivalents at beginning
of period 768 663 663
Net increase in cash within assets
held for sale - (14) -
Cash and cash equivalents at end of
period 17.2 841 725 768
----------------------------------------------------------------------------- ----- ---------- ---------- -----------
(1) Before non-underlying items (Note 7).
(3) 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.
(#) Re-presented to show interest received and paid in relation
to the Group's offset arrangement on a net basis.
Notes to the financial statements
1.1 Basis of accounting
The condensed Group financial statements for the half-year ended
30 June 2017 have been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority and with
IAS 34 Interim Financial Reporting as adopted by the European
Union. The condensed Group financial statements should be read in
conjunction with the financial statements for the year ended 31
December 2016, which were prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European
Union.
The condensed Group financial statements have been reviewed, not
audited, and were approved for issue by the Board on 15 August
2017. The financial information included in this report does not
constitute statutory accounts for the purposes of Section 434 of
the Companies Act 2006. A copy of the Group's audited statutory
accounts for the year ended 31 December 2016 has been delivered to
the Registrar of Companies. The independent auditor's report on
those accounts was unqualified, did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying the report and did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006. The condensed
Group financial statements have been prepared on the basis of the
accounting policies set out in the Annual Report and Accounts 2016
except as described in Note 1.4 below.
1.2 Judgements and key sources of estimation uncertainty
The Group's principal judgements and key sources of estimation
uncertainty remain unchanged since the year-end and are set out in
Note 2.27 on pages 117 and 118 of the Annual Report and Accounts
2016.
1.3 Going concern
Having made appropriate enquiries and reviewed medium-term cash
forecasts, the Directors consider it reasonable to assume that the
Group has adequate resources to continue for a period of not less
than 12 months from the date of this report and, for this reason,
have continued to adopt the going concern basis in preparing the
half-year condensed Group financial statements. Refer to Note
21.
1.4 Adoption of new and revised standards
There are no new or revised standards that have been adopted in
the current period.
1.5 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 30 June 2017:
-- IFRS 9 Financial Instruments
-- IFRS 14 Regulatory Deferral Accounts
-- IFRS 15 Revenue from Contracts with Customers
-- IFRS 16 Leases
-- IFRS 17 Insurance Contracts
-- Amendments to the following standards:
o IAS 40 Transfers of Investment Property
o IAS 7 Disclosure Initiative
o IAS 12 Recognition of Deferred Tax Assets for Unrealised
Losses
o IFRS 2 Classification and Measurement of Share-based Payment
Transactions
o IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts
o IFRS 10 and IAS 28: Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
o Classifications to IFRS 15 Revenue from Contracts with
Customers
o IFRIC 22 Foreign Currency Transactions and Advance
Consideration
o IFRIC 23 Uncertainty over Income Tax Treatments
o Annual improvements to IFRS Standards 2014 - 2016
1.5 Accounting standards not yet adopted by the Group
continued
The Directors have completed the impact assessment of IFRS 9 and
have concluded that under the new standard, 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 continue to assess the impact of IFRS 15 and IFRS
16 but do not expect the other standards above to have a material
quantitative effect.
The assessment of IFRS 15 is progressing and the Group will be
conducting a review of all its contracts in conjunction with its
budgetary cycle in the fourth quarter of the year.
The Group has chosen not to adopt any of the above standards and
interpretations earlier than required.
2 Exchange rates
The following key exchange rates were applied in these financial
statements.
Average rates
2017 2016 2016
1 July 31 Dec
2016 2016
- 30 - 30
first first June June
half half year 2017 2017
GBP1 buys unaudited unaudited audited % change % change
---------- ---------- ---------- -------- ---------- ---------
US$ 1.27 1.41 1.35 (9.9)% (5.9)%
HK$ 9.84 10.98 10.51 (10.4)% (6.4)%
Euro 1.17 1.27 1.23 (7.9)% (4.9)%
---------- ---------- ---------- -------- ---------- ---------
Closing rates
2017 2016 2016
1 July 31 Dec
2016 2016
- 30 - 30
first first June June
half half year 2017 2017
GBP1 buys unaudited unaudited audited % change % change
---------- ---------- ---------- -------- ---------- ---------
US$ 1.30 1.33 1.23 (2.3)% 5.7%
HK$ 10.12 10.30 9.57 (1.7)% 5.7%
Euro 1.14 1.19 1.17 (4.2)% (2.6)%
---------- ---------- ---------- -------- ---------- ---------
3 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, schools, student
accommodation, military housing, offshore transmission networks,
waste and biomass, housing investments and other concessions.
3.1 Income statement - performance by activity from continuing
operations
Certain
legacy
For the half-year Construction Support Infrastructure Corporate Rail ES
ended 30 June 2017 Services Services Investments activities Total Germany contracts Total
unaudited GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------- ------------ -------- -------------- ---------- ----- ------- --------- -----
Revenue including
share of joint ventures
and associates 3,408 519 264 - 4,191 10 - 4,201
Share of revenue of
joint ventures and
associates (512) (15) (128) - (655) (2) - (657)
------------ -------- -------------- ---------- ----- ------- --------- -----
Group revenue 2,896 504 136 - 3,536 8 - 3,544
-------------------------------------------------------------- ------------ -------- -------------- ---------- ----- ------- --------- -----
Group operating profit/(loss)(^) 9 16 - (16) 9 - -
Share of results of
joint ventures and
associates 15 - 15 - 30 - -
-------------------------------------------------------------- ------------ -------- -------------- ---------- ----- ------- ---------
Profit/(loss) from
operations(^) 24 16 15 (16) 39 - -
------- ---------
Non-underlying items
------------ -------- -------------- ---------- -----
* include results from certain legacy Engineering
Services (ES) contracts within Construction Services - - - - -
* include results from Rail Germany within Construction
Services - - - - -
* amortisation of acquired intangible assets (2) - (3) - (5)
* other non-underlying items (2) - - (3) (5)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -----
(4) - (3) (3) (10)
------------ -------- -------------- ---------- -----
Profit/(loss) from
operations 20 16 12 (19) 29
Investment income 20
Finance costs (37)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -----
Profit before taxation 12
-------------------------------------------------------------- ------------ -------- -------------- ---------- -----
(^) Presented before non-underlying items for underlying
operations (Note 7).
3 Segment analysis continued
3.1 Income statement - performance by activity from continuing
operations
Certain
legacy
Construction Support Infrastructure Corporate Total Rail ES Total
For the half-year ended 1 July Services(2) Services Investments activities (2) Germany contracts (2)
2016 unaudited GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------- ------------ -------- -------------- ---------- ----- ------- --------- -----
Revenue including share of joint
ventures and associates 3,036 548 299 - 3,883 88 5 3,976
Share of revenue of joint ventures
and associates (467) (13) (169) - (649) (4) - (653)
------------ -------- -------------- ---------- ----- ------- --------- -----
Group revenue 2,569 535 130 - 3,234 84 5 3,323
-------------------------------------------------------------- ------------ -------- -------------- ---------- ----- ------- --------- -----
Group operating (loss)/profit(^) (66) 11 56 (16) (15) 1 (4)
Share of results of joint ventures
and associates 12 - 14 - 26 - -
-------------------------------------------------------------- ------------ -------- -------------- ---------- ----- ------- ---------
(Loss)/profit from operations(^) (54) 11 70 (16) 11 1 (4)
------- ---------
Non-underlying items
------------ -------- -------------- ---------- -----
* include results from certain legacy ES contracts
within Construction Services (4) - - - (4)
* include results from Rail Germany within Construction
Services 1 - - - 1
* amortisation of acquired intangible assets (1) - (3) - (4)
* other non-underlying items (7) (12) 1 (3) (21)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -----
(11) (12) (2) (3) (28)
------------ -------- -------------- ----------
(Loss)/profit from operations (65) (1) 68 (19) (17)
------------ -------- -------------- ----------
Investment income 40
Finance costs (38)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -----
Loss before taxation (15)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -----
(^) Presented before non-underlying items for underlying
operations (Note 7).
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
Certain
legacy
Construction Support Infrastructure Corporate Total Rail ES Total
For the year ended 31 December Services(2) Services Investments activities (2) Germany contracts (2)
2016 audited GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- --------- -------
Revenue including share of joint
ventures and associates 6,537 1,103 575 - 8,215 150 3 8,368
Share of revenue of joint ventures
and associates (1,066) (27) (340) - (1,433) (12) - (1,445)
------------ -------- -------------- ---------- ------- ------- --------- -------
Group revenue 5,471 1,076 235 - 6,782 138 3 6,923
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- --------- -------
Group operating (loss)/profit(^) (50) 33 62 (33) 12 1 (6)
Share of results of joint ventures
and associates 29 1 27 - 57 - -
-------------------------------------------------------------- ------------ -------- -------------- ---------- ------- ------- ---------
(Loss)/profit from operations(^) (21) 34 89 (33) 69 1 (6)
------- ---------
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)
------------ -------- -------------- ----------
(Loss)/profit from operations (55) 22 83 (33) 17
------------ -------- -------------- ----------
Investment income 75
Finance costs (82)
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
Profit before taxation 10
-------------------------------------------------------------- ------------ -------- -------------- ---------- -------
(^) Presented before non-underlying items for underlying
operations (Note 7).
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
3 Segment analysis continued
3.2 Assets and liabilities by activity
Construction Support Infrastructure Corporate
As at half-year ended 30 June Services Services Investments activities Total
2017 unaudited GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ --------- -------------- ----------- -------
Due from construction contract
customers 256 128 - - 384
Due to construction contract
customers (463) (68) - - (531)
Inventories and non-construction
work in progress 22 52 21 - 95
Trade and other receivables -
current 882 99 37 25 1,043
Trade and other payables - current (1,383) (251) (52) (60) (1,746)
Provisions - current (138) (13) (3) (15) (169)
------------------------------------ ------------ --------- -------------- ----------- -------
Adjusted working capital* (824) (53) 3 (50) (924)
------------------------------------ ------------ --------- -------------- ----------- -------
* Includes non-operating items and current working capital.
Total assets 2,298 485 1,283 820 4,886
Total liabilities (2,430) (365) (644) (682) (4,121)
-------------------------- ------- ----- ----- ----- -------
Net (liabilities)/assets (132) 120 639 138 765
-------------------------- ------- ----- ----- ----- -------
Construction Support Infrastructure Corporate
As at half-year ended 1 July Services Services Investments activities Total
2016 unaudited GBPm GBPm GBPm GBPm GBPm
------------------------------------ ------------ --------- -------------- ----------- -------
Due from construction contract
customers 246 136 - - 382
Due to construction contract
customers (436) (40) - - (476)
Inventories and non-construction
work in progress 44 61 22 - 127
Trade and other receivables -
current 702 108 132 52 994
Trade and other payables - current (1,366) (254) (49) (72) (1,741)
Provisions - current (129) (6) (5) (25) (165)
------------------------------------ ------------ --------- -------------- ----------- -------
Working capital excluding net
assets held for sale* (939) 5 100 (45) (879)
Net assets classified as held
for sale 6 - - - 6
------------------------------------ ------------ --------- -------------- ----------- -------
Adjusted working capital* (933) 5 100 (45) (873)
------------------------------------ ------------ --------- -------------- ----------- -------
* Includes non-operating items and current working capital.
Total assets 2,154 519 1,359 881 4,913
Total liabilities (2,260) (327) (628) (864) (4,079)
-------------------------- ------- ----- ----- ----- -------
Net (liabilities)/assets (106) 192 731 17 834
-------------------------- ------- ----- ----- ----- -------
Construction Support Infrastructure Corporate
As at year ended 31 December Services Services Investments activities Total
2016 audited 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* (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
-------------------------- ------- ----- ----- ----- -------
3 Segment analysis continued
3.3 Other information
Construction Support Infrastructure Corporate
Services Services Investments activities Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------ --------- -------------- ----------- -----
For the half-year ended 30 June
2017 unaudited
Capital expenditure on property,
plant and equipment 3 8 - 2 13
Depreciation 7 5 1 2 15
For the half-year ended 1 July
2016 unaudited
Capital expenditure on property,
plant and equipment 6 1 29 8 44
Depreciation 7 5 1 4 17
Gain on disposals of interests
in investments - - 52 - 52
---------------------------------- ------------ --------- -------------- ----------- -----
For the year ended 31 December
2016 audited
Capital expenditure on property,
plant and equipment 17 3 14 7 41
Depreciation 14 11 2 3 30
Gain on disposals of interests
in investments - - 65 - 65
---------------------------------- ------------ --------- -------------- ----------- -----
3.4 Revenue by geographic destination
Rest
United United of
Kingdom States World(2) Total(2)
GBPm GBPm GBPm GBPm
------------------------------------------- --------- -------- ---------- -----------
For the half-year ended 30 June 2017
unaudited
Revenue including share of joint ventures
and associates 1,575 2,032 594 4,201
Share of revenue of joint ventures
and associates (73) (31) (553) (657)
------------------------------------------- --------- -------- ---------- -----------
Group revenue 1,502 2,001 41 3,544
------------------------------------------- --------- -------- ---------- -----------
For the half-year ended 1 July 2016
unaudited
Revenue including share of joint ventures
and associates 1,663 1,686 627 3,976
Share of revenue of joint ventures
and associates (100) (56) (497) (653)
------------------------------------------- --------- -------- ---------- -----------
Group revenue 1,563 1,630 130 3,323
------------------------------------------- --------- -------- ---------- -----------
For the year ended 31 December 2016
audited
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.
3.5 Infrastructure Investments
Share Share
of of Share
joint joint of
ventures ventures joint
and and ventures
Group associates Total Group associates Total and
2017 2017 2017 2016 2016 2016 Group associates Total
Underlying first first first first first first 2016 2016 2016
profit half half half half half half year year year
from unaudited unaudited(+) unaudited unaudited unaudited(+) unaudited audited audited(+) audited
operations(1) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ---------- ------------- ---------- ---------- ------------- ---------- -------- ----------- --------
UK(^) 5 6 11 2 7 9 6 14 20
North America 13 9 22 7 7 14 16 13 29
Gain on
disposals
of interests
in investments - - - 52 - 52 65 - 65
---------------- ---------- ------------- ---------- ---------- ------------- ---------- -------- ----------- --------
18 15 33 61 14 75 87 27 114
Bidding costs
and overheads (18) - (18) (5) - (5) (25) - (25)
---------------- ---------- ------------- ---------- ---------- ------------- ---------- -------- ----------- --------
- 15 15 56 14 70 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 the first half of 2016
included Australia.
(1) Before non-underlying items (Note 7).
4 Share of results and net assets of joint ventures and
associates
4.1 Income Statement
2017 2016
first first 2016
half half year
unaudited unaudited(2) audited(2)
Continuing operations GBPm GBPm GBPm
-------------------------------------------- ---------- ------------- -----------
Underlying revenue(1) 655 649 1,433
-------------------------------------------- ---------- ------------- -----------
Underlying profit from operations(1) 25 10 53
Investment income 69 84 135
Finance costs (62) (64) (124)
-------------------------------------------- ---------- ------------- -----------
Profit before taxation(1) 32 30 64
Taxation (2) (4) (7)
-------------------------------------------- ---------- ------------- -----------
Profit after taxation before non-underlying
items 30 26 57
Share of results within non-underlying
items - - 1
-------------------------------------------- ---------- ------------- -----------
Profit after taxation 30 26 58
-------------------------------------------- ---------- ------------- -----------
(1) Before non-underlying items (Note 7).
(2) Re-presented to classify the Group's 49% interests in Dutco
Balfour Beatty LLC and BK Gulf LLC as discontinued operations.
4.2 Balance Sheet
2017 2016
first first 2016
half half year
unaudited unaudited(3) audited^
GBPm GBPm GBPm
--------------------------------------------------------- ---------- ------------- ---------
Intangible
assets - goodwill 33 34 35
- Infrastructure Investments intangible 22 16 19
- other 15 11 15
Property, plant and equipment 63 70 62
Investment properties 59 52 61
Investments in joint ventures and associates 7 6 4
PPP financial assets 2,158 1,942 2,129
Military housing projects 118 111 121
Net borrowings (1,191) (1,089) (1,181)
Other net liabilities (654) (585) (637)
--------------------------------------------------------- ---------- ------------- ---------
Share of net assets of joint ventures and
associates 630 568 628
Reclassify net liabilities relating to
Dutco(+) to provisions - 15 -
--------------------------------------------------------- ---------- ------------- ---------
Adjusted share of net assets of joint ventures
and associates 630 583 628
--------------------------------------------------------- ---------- ------------- ---------
(+) Represents the combined results of BK Gulf LLC and Dutco
Balfour Beatty LLC ("Dutco") as both joint ventures have common
ownership and report under the same management structure.
^ Excludes the Group's share of the balance sheets of BK Gulf
LLC and Dutco Balfour Beatty LLC as this is presented within
provisions.
(3) 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.
5 Investment income
2017 2016
first first 2016
half half year
unaudited unaudited audited
GBPm GBPm GBPm
---------------------------------------------- ---------- ---------- --------
Subordinated debt interest receivable 12 15 29
Interest receivable on PPP financial assets 5 12 21
Gain on foreign currency deposits - 12 19
Other interest receivable and similar income 3 1 6
---------------------------------------------- ---------- ---------- --------
20 40 75
---------------------------------------------- ---------- ---------- --------
6 Finance costs
2017 2016
first first 2016
half half year
unaudited unaudited audited
GBPm GBPm GBPm
-------------------------------------------------------- ---------- ---------- --------
Non-recourse borrowings - bank loans and overdrafts 6 12 24
Preference shares - finance cost 6 6 12
- accretion 1 1 2
Convertible bonds - finance cost 2 3 5
- accretion 3 3 7
US private placement - finance cost 7 6 13
Other interest payable - committed facilities 1 2 4
- letter of credit fees 2 2 3
Other finance cost(+) 6 1 8
Net finance cost on pension scheme assets
and liabilities (Note 15) 3 2 4
-------------------------------------------------------- ---------- ---------- --------
37 38 82
-------------------------------------------------------- ---------- ---------- --------
(+) The charge incurred in the first half of 2017 included a
loss on foreign currency deposits of GBP3m.
7 Non-underlying items
2017 2016
first first 2016
half half year
unaudited unaudited audited
GBPm GBPm GBPm
------------------------------------------------------- ---------- ---------- --------
Items credited to/(charged against) profit
7.1 Continuing operations
7.1.1 Trading results from Rail Germany
(including GBPnil (2016: first half GBP6m,
full-year GBP10m) of other net operating
expenses) - 1 1
7.1.2 Results of certain legacy ES contracts - (4) (6)
7.1.3 Amortisation of acquired intangible
assets (5) (4) (9)
7.1.4 Other non-underlying items:
---------- ---------- --------
- Build to Last transformation costs (5) (9) (14)
- provision increases resulting from
revised legal guidelines and settlements - (25) (25)
- release of Trans4m provisions on liquidation - 9 8
- provision increases resulting from
reassessment of industrial disease related
liabilities - - (14)
- Other - 4 6
Total other non-underlying items from
continuing operations (5) (21) (39)
------------------------------------------------------- ---------- ---------- --------
(10) (28) (53)
Share of results of joint ventures
and associates: release of Trans4m
7.1.5 provisions on liquidation - - 1
--------- -------------------------------------------- ---------- ---------- --------
Charged against profit/(loss) before taxation
from continuing operations (10) (28) (52)
7.1.6 Tax on items above 2 1 4
Non-underlying items charged against profit/(loss)
for the period from continuing operations (8) (27) (48)
7.2 Discontinued operations
7.2.1 Other non-underlying items:
---------- ---------- --------
- gain on disposal of Dutco Balfour
Beatty LLC & BK Gulf LLC 5 - -
- gain on disposal of Parsons Brinckerhoff - 2 24
Total other non-underlying items from
discontinued operations 5 2 24
------------------------------------------------------- ---------- ----------
Credited to profit/(loss) before taxation
from discontinued operations 5 2 24
7.2.2 Tax on items above - - -
Non-underlying items credited to profit/(loss)
for the period from discontinued operations 5 2 24
------------------------------------------------------- ---------- ---------- --------
Charged against profit/(loss) for the
period (3) (25) (24)
------------------------------------------------------- ---------- ---------- --------
Continuing operations
7.1.1 Rail Germany's results continue to be presented as part of
the Group's non-underlying items within continuing operations as
the Group remains committed to exiting its Mainland European rail
businesses and does not consider its operations part of the Group's
underlying activity. In the first half of 2017, Rail Germany
generated a trading result before tax excluding share of joint
ventures and associates of GBPnil (2016: first half GBP1m profit;
full-year GBP1m profit).
7.1.2 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 GBPnil gain or loss before tax for the Group in the
first half of 2017 (2016: first half GBP4m loss; full-year GBP6m
loss).
7.1.3 The amortisation of acquired intangible comprises:
customer contracts GBP3m (2016: first half GBP3m; full-year GBP6m);
and customer relationships GBP2m (2016: first half GBP1m; full-year
GBP3m).
7 Non-underlying items continued
7.1.4.1 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 GBP5m were incurred in the first
half of 2017 (2016: first half GBP9m, full year GBP14m) relating
to: Construction Services GBP2m (2016: first half GBP5m; full-year
GBP12m), Support Services GBPnil (2016: first half GBP1m; full-year
GBP1m) and Corporate GBP3m (2016: first half GBP3m, full-year
GBP1m). These restructuring costs comprise: redundancy costs GBP2m
(2016: first half GBP5m; full-year GBP9m), external advisers GBPnil
(2016: first half GBP2m; full-year GBP2m), property-related costs
GBP3m (2016: first half GBP1m; full-year GBP1m) and other
restructuring costs GBPnil (2016: first half GBP1m; full-year
GBP2m).
7.1.6 The non-underlying items charged against Group operating
profits from continuing operations gave rise to a tax credit of
GBP2m on amortisation of acquired intangible assets (2016: first
half GBP1m credit comprising: GBP2m charge on the results of Rail
Germany and GBP1m credit on certain legacy Engineering services
contracts; GBP1m credit on amortisation of acquired intangible
assets and GBP1m credit on other non-underlying items; full year
tax credit of GBP4m comprising: GBP3m tax credit on amortisation of
intangibles assets; GBP3m tax charge on the results of Rail
Germany; and GBP4m credit on other non-underlying items).
Discontinued operations
7.2.1.1 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 18.2.1.
7.2.2 The non-underlying items charged against profit from
discontinued operations gave rise to a tax credit of GBPnil.
8 Taxation
Non-
underlying
items
Underlying (Note
items 7) Total
2017 2017 2017 2016
first first first first 2016
half half half half year
unaudited(1) unaudited unaudited unaudited audited
GBPm GBPm GBPm GBPm GBPm
----------------------------- ------------- ----------- ---------- ----------- ---------
Total UK tax (11) - (11) (12) 2
Total non-UK tax 11 (2) 9 4 6
----------------------------- ------------- ----------- ---------- ----------- ---------
Total tax (credit)/charge(x) - (2) (2) (8) 8
----------------------------- ------------- ----------- ---------- ----------- ---------
UK current tax - - - - (7)
Non-UK current tax - - - 1 (7)
----------------------------- ------------- ----------- ---------- ----------- ---------
Total current tax - - - 1 (14)
----------------------------- ------------- ----------- ---------- ----------- ---------
UK deferred tax (11) - (11) (12) 9
Non-UK deferred tax 11 (2) 9 3 13
----------------------------- ------------- ----------- ---------- ----------- ---------
Total deferred tax - (2) (2) (9) 22
----------------------------- ------------- ----------- ---------- ----------- ---------
Total tax (credit)/charge(x) - (2) (2) (8) 8
----------------------------- ------------- ----------- ---------- ----------- ---------
(x) Excluding joint ventures and associates.
(1) Before non-underlying items (Note 7).
In addition to the Group tax charge above, tax of GBP5m is
credited (2016: first half GBP11m credit, full-year GBP16m credit)
directly to other comprehensive income, comprising: a deferred tax
credit of GBP3m (2016: first half GBPnil, full-year GBP1m credit)
and a deferred tax credit in respect of joint ventures and
associates of GBP2m (2016: first half GBP11m credit, full-year
GBP15m credit).
9 Earnings per ordinary share
2017 first 2016 first 2016 year
half unaudited half unaudited(2) audited(2)
----------------- -------------------- --------------
Basic Diluted Basic Diluted Basic Diluted
Earnings GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------- -------- -------- ---------- ----- -------
Continuing operations
Earnings/(loss) 14 14 (7) (7) 2 2
Amortisation of acquired
intangible assets net of
tax 3 3 3 3 6 6
Other non-underlying items
net of tax 5 5 24 24 42 42
--------------------------- ------- -------- -------- ---------- ----- -------
Underlying earnings 22 22 20 20 50 50
--------------------------- ------- -------- -------- ---------- ----- -------
Discontinued operations
Earnings/(loss) 6 6 (4) (4) 22 22
Other non-underlying items
net of tax (5) (5) (2) (2) (24) (24)
--------------------------- ------- -------- -------- ---------- ----- -------
Underlying earnings/(loss) 1 1 (6) (6) (2) (2)
--------------------------- ------- -------- -------- ---------- ----- -------
Total operations
Earnings/(loss) 20 20 (11) (11) 24 24
Amortisation of acquired
intangible assets net of
tax 3 3 3 3 6 6
Other non-underlying items
net of tax - - 22 22 18 18
--------------------------- ------- -------- -------- ---------- ----- -------
Underlying earnings 23 23 14 14 48 48
--------------------------- ------- -------- -------- ---------- ----- -------
Basic Diluted Basic Diluted Basic Diluted
m m m m m m
--------------------------- ----- ------- ----- ------- ----- -------
Weighted average number of
ordinary shares 680 684 680 680 680 684
--------------------------- ----- ------- ----- ------- ----- -------
Basic Diluted Basic Diluted Basic Diluted
Earnings per share pence pence pence pence pence pence
--------------------------------- ------ ------- ------ ------- ------ -------
Continuing operations
Earnings/(loss) per ordinary
share 2.0 2.0 (1.3) (1.3) 0.2 0.2
Amortisation of acquired
intangible assets net of
tax 0.4 0.4 0.5 0.5 0.9 0.9
Other non-underlying items
net of tax 0.8 0.8 3.5 3.5 6.1 6.1
--------------------------------- ------ ------- ------ ------- ------ -------
Underlying earnings per ordinary
share 3.2 3.2 2.7 2.7 7.2 7.2
--------------------------------- ------ ------- ------ ------- ------ -------
Discontinued operations
Earnings/(loss) per ordinary
share 0.9 0.9 (0.3) (0.3) 3.3 3.3
Other non-underlying items
net of tax (0.8) (0.8) (0.4) (0.4) (3.5) (3.5)
--------------------------------- ------ ------- ------ ------- ------ -------
Underlying earnings/(loss)
per ordinary share 0.1 0.1 (0.7) (0.7) (0.2) (0.2)
--------------------------------- ------ ------- ------ ------- ------ -------
Total operations
Earnings/(loss) per ordinary
share 2.9 2.9 (1.6) (1.6) 3.5 3.5
Amortisation of acquired
intangible assets net of
tax 0.4 0.4 0.5 0.5 0.9 0.9
Other non-underlying items
net of tax - - 3.1 3.1 2.6 2.6
--------------------------------- ------ ------- ------ ------- ------ -------
Underlying earnings per ordinary
share 3.3 3.3 2.0 2.0 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.
10 Dividends on ordinary shares
2017 first half 2016 first 2016 year
unaudited half unaudited audited
----------------- ----------------- --------------
Per Per Per
share Amount share Amount share Amount
pence GBPm pence GBPm pence GBPm
----------------------------- -------- ------- -------- ------- ------ ------
Proposed dividends for the
period
Interim 2016 - - 0.9 6 0.9 6
Final 2016 - - - - 1.8 12
Interim 2017 1.2 8 - - - -
----------------------------- -------- ------- -------- ------- ------ ------
1.2 8 0.9 6 2.7 18
----------------------------- -------- ------- -------- ------- ------ ------
Recognised dividends for the
period
Interim 2016 - - 6
Final 2016 12 - -
12 - 6
----------------------------- -------- ------- -------- ------- ------ ------
The interim 2016 dividend was paid on 2 December 2016. The final
2016 dividend was 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 were quoted ex-dividend on 20 April 2017.
The Board is declaring an interim dividend of 1.2 pence per
share, a 33% increase on prior year (0.9 pence per share). The
Board anticipates a progressive dividend policy going forward.
11 Intangible assets - goodwill
Accumulated
impairment Carrying
Cost losses amount
GBPm GBPm GBPm
--------------------------------- ----- ----------- --------
At 1 January 2016 audited 997 (153) 844
Currency translation differences 72 (20) 52
At 1 July 2016 unaudited 1,069 (173) 896
Currency translation differences 44 (5) 39
Additions 2 - 2
Disposals (5) 5 -
At 31 December 2016 audited 1,110 (173) 937
Currency translation differences (26) - (26)
--------------------------------- ----- ----------- --------
At 30 June 2017 unaudited 1,084 (173) 911
--------------------------------- ----- ----------- --------
As at 30 June 2017, the Group performed an assessment to
identify indicators of impairment relating to goodwill allocated to
cash-generating units (CGUs). This included a review of internal
and external indicators of impairment and consideration of the
year-to-date performance of the relevant CGUs and any changes in
key assumptions. The result of this assessment did not identify any
indicators of impairment which could reasonably be expected to
eliminate the headroom computed at 31 December 2016 and therefore
no impairment charges were recorded in the first half of 2017
(2016: first half GBPnil; full-year GBPnil).
A full detailed impairment review will be conducted at 31
December 2017.
12 Trade and other receivables
2017 2016
first first 2016
half half year
unaudited unaudited audited
GBPm GBPm GBPm
----------------------------------------- ----------- ----------- ---------
Current
Trade receivables 719 545 653
Less: provision for impairment of trade
receivables (6) (7) (7)
----------------------------------------- ----------- ----------- ---------
713 538 646
Other receivables 25 41 60
Due from joint ventures and associates 36 62 58
Due from joint operation partners 6 12 7
Contract retentions receivable(+) 207 205 242
Accrued income 16 21 17
Prepayments 39 42 36
Due on disposals 1 73 -
----------------------------------------- ----------- ----------- ---------
1,043 994 1,066
----------------------------------------- ----------- ----------- ---------
Non-current
Other receivables 4 3 4
Due from joint ventures and associates 37 6 25
Contract retentions receivable(+) 172 137 151
Due on disposals 4 - -
217 146 180
----------------------------------------- ----------- ----------- ---------
Total trade and other receivables 1,260 1,140 1,246
----------------------------------------- ----------- ----------- ---------
(+) Including GBP378m (2016: first half GBP339m; full-year
GBP390m) construction contract retentions receivable.
13 Trade and other payables
2017 2016
first first 2016
half half year
unaudited unaudited audited
GBPm GBPm GBPm
---------------------------------------- ----------- ----------- ---------
Current
Trade and other payables 976 916 936
Accruals 651 750 701
Deferred income 21 6 15
Advance payments on contracts 1 - 4
VAT, payroll taxes and social security 65 64 73
Due to joint ventures and associates 10 2 11
Dividends on preference shares 6 - 6
Dividends on ordinary shares 12 - -
Due on acquisitions 3 3 3
Due on disposals 1 - 3
---------------------------------------- ----------- ----------- ---------
1,746 1,741 1,752
---------------------------------------- ----------- ----------- ---------
Non-current
Trade and other payables 129 104 110
Accruals 19 8 20
Due to joint ventures and associates 7 7 7
Due on acquisitions 11 13 14
---------------------------------------- ----------- ----------- ---------
166 132 151
---------------------------------------- ----------- ----------- ---------
Total trade and other payables 1,912 1,873 1,903
---------------------------------------- ----------- ----------- ---------
14 PPP financial assets
Economic Social
infrastructure(+) infrastructure(+) Total
GBPm GBPm GBPm
-------------------------------------------------- ------------------ ------------------ -----
At 1 January 2016 audited 283 119 402
Income recognised in the income statement
- interest income (Note 5) 8 4 12
Gains recognised in the statement of
comprehensive income
- fair value movements 17 5 22
Other movements
- cash expenditure 11 3 14
- cash received (15) (3) (18)
At 1 July 2016 unaudited 304 128 432
Income recognised in the income statement
- interest income (Note 5) 6 3 9
Gains/(losses) recognised in the statement
of comprehensive income
- fair value movements (1) 6 5
Other movements
- cash expenditure 14 3 17
- cash received (13) (8) (21)
- disposal of interest in the five streetlighting
projects (279) - (279)
-------------------------------------------------- ------------------ ------------------ -----
At 31 December 2016 audited 31 132 163
Income recognised in the income statement
- interest income (Note 5) 1 4 5
Gains recognised in the statement of
comprehensive income
- fair value movements - (2) (2)
Other movements
- cash expenditure - 2 2
- cash received (2) (7) (9)
At 30 June 2017 unaudited 30 129 159
-------------------------------------------------- ------------------ ------------------ -----
(+) These categories have been renamed to provide a more
appropriate classification of the Group's PPP financial assets.
Economic infrastructure primarily represents assets providing
transportation networks. Social infrastructure primarily represents
assets providing student accommodation, healthcare and fire and
rescue services.
15 Retirement benefit assets and liabilities
2017 2016
first first 2016
Principal actuarial assumptions for the half half year
IAS 19 accounting valuations of the Group's unaudited unaudited audited
principal schemes GBPm GBPm GBPm
------------------------------------------------ ---------- ---------- --------
Discount rate on obligations 2.45 2.70 2.50
Inflation
rate - RPI 3.20 2.75 3.20
- CPI 2.00 1.35 2.00
Future increases in pensionable salary 2.95 1.35 2.95
------------------------------------------------ ---------- ---------- --------
2017 2016
first first 2016
half half year
Analysis of net liabilities in the Balance unaudited unaudited audited
Sheet GBPm GBPm GBPm
------------------------------------------- ---------- ---------- --------
Balfour Beatty Pension Fund (50) 27 (62)
Railways Pension Scheme(^) (102) (71) (113)
Other schemes* (56) (52) (56)
------------------------------------------- ---------- ---------- --------
(208) (96) (231)
------------------------------------------- ---------- ---------- --------
(*) Other schemes include the Group's deferred compensation
obligations for which available-for-sale investments in mutual
funds of GBP23m (2016: first half GBP21m, full-year GBP23m) are
held by the Group to satisfy these obligations.
(^) The triennial valuation of the Railways Pension Scheme as at
31 December 2016 is ongoing.
2017 2016
first first 2016
half half year
unaudited unaudited audited
Amounts recognised in the Balance Sheet GBPm GBPm GBPm
---------------------------------------- ---------- ---------- --------
Present value of obligations (4,096) (3,904) (4,155)
Fair value of plan assets 3,888 3,808 3,924
---------------------------------------- ---------- ---------- --------
Net liabilities in the Balance Sheet (208) (96)(+) (231)
---------------------------------------- ---------- ---------- --------
(+) This amount represents the aggregate of the retirement
benefit assets of GBP27m and the retirement benefit liabilities of
GBP123m 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 GBP27m.
2017 2016
first first 2016
half half year
Movements in the retirement benefit net unaudited unaudited audited
liabilities for the period GBPm GBPm GBPm
-------------------------------------------------------- ---------- ---------- --------
At beginning of period (231) (146) (146)
Currency translation differences 2 (6) (9)
Current service cost (3) (3) (6)
Interest cost (51) (61) (122)
Interest income 48 59 118
- on obligations from reassessing
the difference between RPI and
Actuarial movements CPI - - (44)
- on obligations from changes
to other financial assumptions (34) (538) (806)
- on obligations from changes
in demographic assumptions 44 - (51)
- on obligations from experience
(losses)/gains - - 76
- on assets 4 560 704
Contributions from
employer - regular funding 1 1 2
- 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 GBP27m and the retirement benefit liabilities of
GBP123m 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 GBP27m.
In the first half of 2017, the Group recorded net actuarial
gains on its retirement benefit schemes of GBP14 million (2016:
first half GBP22m net gains; full-year GBP121m 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 GBP1m (2016: first half GBP4m; full-year GBP4m) 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
-----------------------------
Underlying Non-underlying Discontinued
items items operations Total Total
2017 2017 2017 2017 2016 Total
first first first first first 2016
half half half half half year
17.1 Cash generated from/(used unaudited(1) unaudited unaudited unaudited unaudited audited
in) operations GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- ------------- -------------- ------------ ---------- ---------- --------
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
2017 2016
first first 2016
half half year
unaudited unaudited audited
17.2 Cash and cash equivalents GBPm GBPm GBPm
------------------------------------------------ ---------- ---------- --------
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
------------------------------------------------ ---------- ---------- --------
2017 2016
first first 2016
half half year
unaudited unaudited audited
17.3 Analysis of net borrowings GBPm GBPm GBPm
------------------------------------------------------------------------------ ----------- ----------- --------
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 GBP14m of cash reported within assets held
for sale amounts to GBP129m at 1 July 2016.
Infrastructure
concessions
non-recourse
project
finance
2017 Other Total
first 2017 2017 2016 2016
half first half first half first half year
17.4 Analysis of movement in unaudited unaudited unaudited unaudited audited
net (borrowings)/cash GBPm GBPm GBPm GBPm GBPm
------------------------------------------------ ---------------
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 GBP146m (2016: first half increase GBP5m, full-year decrease
GBP13m) and an increase of GBP210m (2016: first half GBP36m,
full-year GBP65m) 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 GBP62m (2016: first half
increase GBP21m, full-year increase GBP38m), and a repayment of
loans of GBP50m (2016: first half GBPnil, full-year GBP1m).
18 Acquisitions and disposals
18.1 Acquisitions
There were no acquisitions made in the first half of 2017.
18.2 Disposals
Amount
Net recycled Direct Non-
Percentage Cash assets from costs Underlying underlying
Disposal disposed Consideration* disposed reserves incurred gain gain/(loss)
Notes date Entity/business % GBPm GBPm GBPm GBPm GBPm GBPm
Dutco Balfour
1 March Beatty LLC & BK
18.2.1 2017 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 GBP17m 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 GBP11m,
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 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 that year end.
The Group subsequently completed the disposal in March 2017.
Payment of GBP2m was made by the Group in the first half of the
year with a further GBP1m 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 GBP143m (2016: first half GBP184m, full-year 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. 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.
2017 2016 2016
first half first half year
unaudited unaudited audited
GBPm GBPm GBPm
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
2017 2016
first first 2016
half half year
unaudited unaudited audited
Financial instruments at fair value GBPm GBPm GBPm
----------------------------------------------------------------------- ---------- ---------- --------
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 GBP7m
decrease (2016: first half GBP20m; full-year GBP7m) / GBP7m
increase (2016: first half GBP18m; full-year GBP7m) 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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