Press Release

Summary

• Total revenue^1,2 of £8.8 billion, up 2% at constant exchange rates (CER); order book² at £11.4 billion (2013: £11.8 billion), down 7% at CER.
• Total loss for the year of £59 million (2013: £35 million).
• UK construction losses include a further £118 million write-down, following an assessment of the existing risk provisions by the Board.
• International construction revenues up 24% at CER to £1.0 billion, predominantly due to Hong Kong based joint venture; Middle East construction underlying losses of £15 million.
• Investments delivers consistently strong performance, with underlying profit from operations increased to £127 million (2013: £102 million). Directors’ valuation of Investments portfolio at £1,300 million (2013: £766 million).
• Strengthened balance sheet with £219 million net cash. Net assets increased to £1,230 million (2013: £1,035 million), including a £306 million reduction in the pension deficits to £128 million.
• The Board decided not to recommend a final dividend, to ensure balance sheet strength is maintained, but expects to reinstate the dividend at an appropriate level, by March 2016.
• ‘Build to Last’ business transformation programme has gained early momentum. Phase 1 is 24 months of self-help: to deliver £200 million cash flow improvement and £100 million cost savings versus 2014.
• Significant progress in first 12 weeks of 2015 with Board changes, senior leadership appointments, programme work streams established and consolidation of UK support functions already underway.

Notes:

• 1 including share of joint ventures and associates
• 2 from continuing operations
• 3 before non-underlying items (Note 8)
• 4 re-presented to classify Parsons Brinckerhoff and Rail Italy as discontinued operations; to include results of Rail Germany, which no longer meets the definition of a discontinued operation, as non-underlying items, and to show the results of certain legacy Engineering Services contracts as non-underlying items (Notes 3.5 and 10)

Leo Quinn, Group Chief Executive commented: “Balfour Beatty is a global name built on the exceptional engineering skills of its people. This strength is evidenced by the continuing flow of landmark contracts across the Group. The business model also balances Construction Services and Support Services with a successful Investments business which will continue to create significant value.

“Over the next two years we should work through the severe legacy of “problem” construction projects. However, in tackling the cultural change required to ensure these issues are behind us, we face major short-term challenges. The key is that we are determined to address this through self-help. Our transformation programme, Build to Last, is gaining rapid traction and we are driving initial improvements of £200 million cash in, £100 million cost out over 24 months. In addition, our Investments portfolio will provide the financial flexibility of both reliable income and the sale of maturing assets into a strong market.

“To maintain balance sheet strength throughout this period, we have already cancelled the share buyback and re-phased our pension fund payments with the support of the trustee. We have also decided not to recommend a final dividend this year, but expect to reinstate the dividend at an appropriate level by March 2016.

“I remain convinced that all our operations can achieve industry-standard performance as markets improve. The real prize is a sustainable return to profitable growth, built on the Group’s unique capabilities, underpinned by leaner, stronger processes and flawless execution. Longer term we believe that as a leader in its core markets Balfour Beatty should be able to deliver superior returns to the benefit of its customers, employees and shareholders.”

Divisional highlights

Construction Services

• Underlying revenue^1,2,3 flat at £6.6 billion.
• Underlying loss^2,3 for the year of £209 million (2013: profit £18 million) reflecting a very poor performance from the UK construction business. Total loss² for the year of £391 million (2013: £103 million).
• UK construction revenues^1,2,3  fell by 6% to £2.35 billion. Growth in Major Projects was more than offset by reductions elsewhere. The business remains focused on implementing the recommendations of the KPMG review, to return to profitability and peer group margins.
• Senior leadership within the UK Regional and Engineering Services businesses will be strengthened by the introduction of a new chief operating officer.
• US revenues^1,2  remained flat in the year at £3.0 billion (up 5% at constant exchange rates). Order book at CER maintained flat as a result of good order intake. In 2014, the business was the third-largest building market contractor in the US by revenue.
• Revenues from the international business^1,2  grew by 24% at CER to £1.0 billion, predominantly due to Gammon, the Hong Kong based joint venture.
• Middle East construction underlying losses of £15 million largely due to two specific contract positions within the mechanical and electrical engineering joint venture.

Support Services

• Revenue^1,2 for the year was up 1% at £1,273 million, with a 35% increase in transportation revenues being largely offset by expected revenue decline in the power sector.
• Underlying profit^2,3 from operations was down 9% at £50 million (2013: £55 million), with an underlying operating margin of 3.9% (2013: 4.3%). Good performances in the water sector, including the settlement of multi-year commercial issues, and the transportation sector, were offset by lower volumes in power.

Infrastructure Investments

• Infrastructure Investments achieved record financial results, with future value underpinned by Investments portfolio.
• Directors’ valuation increased to £1,300 million (2013: £766 million) despite realising £159 million of disposal proceeds and £92 million of other distributions.
• Underlying pre-tax profits³ increased to £162 million (2013: £132 million), driven by increases in profits on disposal, pre-disposals operating profits and net interest income.
• Number of investments within the portfolio increased to 66 (2013: 61) as the portfolio continued to expand into new sectors and geographies.
• Group has a strong pipeline of new investment opportunities and expects to invest over £300 million over the next five years. Directors estimate the value of the future pipeline at an additional 10%-15% of the Directors’ valuation of the Investments portfolio.

Analyst/investor enquiries:
Peter Young - peter.h.young@balfourbeatty.com
Tel. +44 (0)20 7216 6824

Media enquiries:
Dominic Cheetham - dominic.cheetham@balfourbeatty.com
Tel. +44 (0)20 7963 4235

Tulchan Communications:
Andrew Grant/David Allchurch - dallchurch@tulchangroup.com
Tel. +44 (0) 207 353 4200

Analyst presentation: 
A presentation to analysts and investors will be made at London Stock Exchange, The Forum, 10 Paternoster Square, London EC4M 7LS at 08:30 (UK time) on 25 March 2015.

To download the report, please go to our results, reports and presentations page.