Slide 1: 2014 full-year results presentation
2014 full-year results presentation 25 March 2015
Slide 2: Forward-looking statements
Forward-looking statements This presentation 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 forwar
Slide 3: Leo Quinn, Chief Executive Officer
LEO QUINN Chief Executive Officer
Slide 4: A complex transformation
A complex transformation 2014 exposed legacy issues – complex devolved Group, poor processes and controls, costs not managed Retained strengths: strong brand, great capability, committed and skilled people, customer confidence Review of the Group not finished – only the first 12 weeks Proble
Slide 5: Starting point: 2014 cumulative cash flow
Starting point: 2014 cumulative cash flow 350 0 Cash flow excluding PB net proceeds (350) (700) Q1 Q2 Q3 Q4 CHANGING PROCESSES AND CULTURE TAKES TIME 4
Slide 6: What is required for first 24 months
What is required for first 24 months Maintain balance sheet strength ● Cancelled £200m share buyback ● Re-phased £85m pension fund committed payments over 8 years ● Suspending the dividend: reinstatement expected March 2016 at an appropriate level Maintain financial flexibility ● Underpinned by
Slide 7: Financials
FINANCIALS Balfour Beatty
Slide 8: Headline numbers
Headline numbers Actual Constant FY 2014 FY 2013 growth currency Order book* £11.4bn £11.8bn - 4% - 7% Revenue* £8,440m £8,478m - + 2% (Loss) / profit from operations* £(58)m £146m Pre-tax (loss) / profit* £(80)m £131m Underlying EPS* (11.5)p 15.3p Directors’ valuation £1,300m £766m Net cash / (debt
Slide 9: Construction Services
Construction Services Order book £6.0bn £10.0bn FY14 Constant % £bn currency £8.0bn £4.0bn US 47 3.7 -% £6.0bn UK 33 2.6 - 5% £4.0bn £2.0bn RoW 20 1.6 - 3% £2.0bn £0.0bn £0.0bn Total 7.9 - 3% 09HY 09FY 10HY 10FY 11HY 11FY 12HY 12FY 13HY 13FY 14HY 14FY Revenue £2.0bn £3.8bn FY14 Constant £3.6bn % £bn
Slide 10: Support Services
Support Services Order book £3.0bn £5.0bn FY14 Constant % £bn currency £4.0bn £2.0bn Transport 54 1.9 - 18% £3.0bn Power 37 1.3 - 18% £2.0bn £1.0bn £1.0bn Water 9 0.3 + 49% £0.0bn £0.0bn Total 3.5 - 14% 09HY 09FY 10HY 10FY 11HY 11FY 12HY 12FY 13HY 13FY 14HY 14FY Revenue £0.4bn £0.8bn FY14 Constant %
Slide 11: Profit from operations – by segment
Profit from operations – by segment Construction Support Infrastructure Corporate Total Services* Services* Investments* activities* underlying* FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 FY14 FY13 (209) 18 50 55 127 102 (26) (29) (58) 146 - 0.3% 3.9% 4.3% 22.3% 16.8% 1.7% • UK underlying loss • Good p
Slide 12: Non-underlying items
Non-underlying items £m Continuing Discontinued Total Trading - ES (88) - Rail Germany (24) (112) - (112) Impairment & Amortisation - Amortisation of acquired intangibles (11) (8) - Rail Germany impairment (30) - Rail Italy impairment (26) - Oracle (21) - Other (1) (63) (34) (97) Restructuring & reo
Slide 13: UK Construction write-downs
UK Construction write-downs £m 1) Difference between the reported contract positions, as at August 2014, and KPMG’s assessment as at the (20) same date 2) Assessment of contract forecasts and subsequent (50) deterioration in project performance Announced January 2015 (70) 3) Board assessment of the
Slide 14: Construction Services segment
Construction Services segment FY 2014 FY 2013 £m Revenue PFO Revenue PFO US 2,996 29 2,997 27 UK (excl. ES) 2,229 (180) 2,373 (9) ES – underlying# 121 (49) 136 (11) Rail UK & International 368 (6) 388 (12) Overseas joint ventures# - Middle East 177 (15) 129 6 - Far East* 706 12 571 17 6,597 (209) 6,
Slide 15: Working capital – Summary
Working capital – Summary Group CS UK 0 0 0 -5% Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec £(200)m 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -3% 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -7% £(400)m £(200)m -9% -6% £(
Slide 16: Infrastructure Investments: closes and disposals
Infrastructure Investments Successful period for closes and disposals Achieved Appointed Remain financial preferred preferred FY 14 close bidder Total bidder projects University/student 4 6 accommodation OFTO 2 3 Hospitals 3 6 Military housing 1 21 Transport 1 13 Housing 3 2 Energy 1 3 Justice 1 1 S
Slide 17: Directors' valuation – increased to £1.3bn
Directors’ valuation – increased to £1.3bn £m FY 2014 FY 2013 Opening valuation 766 734 Cash invested incl. BBIP investment 73 Cash received – distributions (92) – disposals (159) (251) Net cash received (178) (163) Unwind of discount on NPV 78 74 New project wins 26 4 Disposal gains against Directo
Slide 18: Cash used in operating activities
Cash used in operating activities £m FY 2014 FY 2013 (Loss) / profit from underlying operations (58) 146 Share of JV profit (55) (71) Depreciation 33 50 Pension deficit payments (49) (57) Profit on disposal of infrastructure concessions (93) (82) Working capital 26 (121) Other 4 - Cash used in under
Slide 19: Managing the balance sheet
Managing the balance sheet Strength Liquidity £1,400m £600m £1,000m £600m £200m £200m £(200)m £(200)m £(600)m £(600)m £(1,000)m £(1,000)m £(1,400)m £(1,400)m FY09 FY10 FY11 FY12 FY13 FY14 FY09 FY10 FY11 FY12 FY13 FY14 Working capital Net cash/(debt) 2 Committed facilities USPP DV of investments 1 Ne
Slide 20: Pensions – balance sheet movement
Pensions – balance sheet movement £337m £7m £586m £54m £441m £434m £275m £333m £574m £22m £128m Dec Dec Dec Dec Dec Actuarial Actuarial Other Service Company Dec 2009 2010 2011 2012 2013 loss gain movements 2014* cost* contributions liabilities assets 2.15% 2.05% 1.9% 1.5% 1.05% Real discount rate 0
Slide 21: Benefit of hedging strategy on pension deficit
Benefit of hedging strategy on pension deficit Hedging Deficit % of liabilities hedged Deficit in millions 120% £500m 100% £400m 80% £300m 60% £290m £200m benefit 40% from hedge £100m strategy 20% 0% £0m 31 Dec 2009 31 Dec 2014 31 Dec 2009 31 Dec 2014 31 Dec 2009 (actual hedging (actual hedging hedg
Slide 22: Summary of 2014 performance
Summary of 2014 performance Very disappointing UK construction performance and poor performance in Middle East Strong performance in Investments and Support Services Despite write-downs, ended the year with strong balance sheet: ● PB sale proceeds resulted in Group closing with net cash of £21
Slide 23: Leo Quinn, Chief Executive Officer
LEO QUINN Chief Executive Officer
Slide 24: Understanding the problems – 'forced growth'
Understanding the problems – ‘forced growth’ 1 Group grew too quickly Financial & operational disciplines lost 2 Acquisitions not integrated Cost base & complexity multiplied 3 “Federated” management model Operational governance failings – contract terms 4 Market downturn exacerbated issues Took on
Slide 25: The fundamentals remain intact
The fundamentals remain intact Brand – remains strong Customers – remain supportive of Balfour Beatty Specialist engineering capability – significant project wins Material synergies between Construction, Services & Investments Employees embracing change STRONG FOUNDATION FOR RECOVERY 24
Slide 26: The first 12 weeks
The first 12 weeks Reviews and actions underway What remains to be reviewed UK Construction UK Support Services US Construction Construction – International JVs Investments – Directors’ valuation Construction – US Infrastructure UK support functions Construction – International Rail Cash management
Slide 27: What are the opportunities?
What are the opportunities? 1 Cost base too high Group-wide overheads c.1% of revenue above industry average 2 Major cash outflow c.£600 million working capital outflow peak to trough 3 Market outlook Activity rising (margins take longer) Period end working capital position* 0 Dec 09 Dec 10 Dec 11 D
Slide 28: What are we doing about it?
What are we doing about it? Metrics Operating cash flow EBIT Employment engagement Employee retention Customer satisfaction Zero Harm TRANSFORMATION PROGRAMME LAUNCHED 27
Slide 29: LEAN – What are the initial targets?
LEAN – What are the initial targets? £200m cash in £100m cost out versus 2014 versus 2014 Levers: Levers: ● Commercial management ● Enabling functions ● Working capital – IT, HR, Legal, Finance ● Claims management ● Property ● Profitable revenue ● Procurement “BUILD TO LAST” WHILST PRESERVING FR
Slide 30: Actions to date
Actions to date Leadership Board strengthened – Chairman , CEO, CFO New Group roles – Commercial, Procurement, IT UK construction – new COO for Regional & ES Culture Replace “federated” with “One Balfour Beatty” My Contribution launching next month – continuous improvement Incentives ali
Slide 31: Transformation anchored by Investments business
Transformation “anchored” by Investments business Integral to Group business model - complements Construction and Support Services Directors’ valuation demonstrates value creation Short term, tactical sale of maturing assets provides financial flexibility Mid term, attractive cash earnings w
Slide 32: Build to Last
Build to Last Core strengths intact Continuing to win landmark projects Transformation programme has momentum Short-term challenges and uncertainties Maintain balance sheet strength Phase One: self-help to deliver £200m cash in / £100m cost out RESTORE BALFOUR BEATTY TO STRENGTH 31
Slide 33: Appendix
APPENDIX Balfour Beatty
Slide 34: Order book position compared with a year ago
Order book position compared with a year ago £5.4bn £5.6bn Total at FY 2014 £11.4bn Total at FY 2013 £11.8bn £0.8bn £0.9bn £0.9bn £0.8bn £3.7bn £3.3bn £2.7bn £2.5bn £1.9bn £2.2bn £0.7bn £0.5bn £2.5bn £2.2bn £0.4bn £0.5bn £1.8bn £1.0bn £0.9bn £0.3bn £0.2bn £1.7bn £0.7bn £0.6bn £0.6bn £0.6bn £0.2bn £0
Slide 35: Working capital – Group
Working capital – Group 0 0 Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec £(200)m 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -3% £(400)m £(600)m -6% £(800)m -7.1% -6.2% -7.3% -9% £(1,000)m -9.6% -9.9% £(1,200)m -12% £(1,400)m -12.2% -12.3% -12.6% -12.9% £(1,600)m -15% CS UK write-dow
Slide 36: Working capital – Group – restated
Working capital – Group – restated 0 0 Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec £(200)m 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -3% £(400)m £(600)m -6% £(800)m -7.3% -9% £(1,000)m -9.5% -8.5% £(1,200)m -9.9% -12% £(1,400)m -12.2% -11.9% -12.6% £(1,600)m -15% -14.4% -14.5% CS
Slide 37: Working capital – Construction Services – Consolidated
Working capital – Construction Services – Consolidated £(300)m -5% Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -7% £(500)m -8.9% -9% £(700)m -9.7% -12.2% -11% -10.8% £(900)m -10.5% -13% £(1,100)m -13.4% -14.2% -15% -14.6% £(1,300)m -15.4%
Slide 38: Working capital – Construction Services UK
Working capital – Construction Services UK 0 -5% Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec £(100)m 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -7% £(200)m -9% £(300)m -10.9% -11% £(400)m £(500)m -13.9% -13% -14.7% £(600)m -15% £(700)m -15.0% -15.7% -17% £(800)m -17.4% -19% £(900)m
Slide 39: Working capital – Construction Services US
Working capital – Construction Services US 0 0 Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec £(50)m 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 -2% £(100)m -4% £(150)m -6% £(200)m -7.1% -6.7% -8% £(250)m -8.2% -10% -9.2% £(300)m -12% £(350)m -11.8% £(400)m -13.3% -14% -13.7% £(450)m -
Slide 40: Working capital – Support Services
Working capital – Support Services 3.5% 4% £40m 3% 1.4% £20m 2% 1% £0m 0% £(20)m 0.2% -1% £(40)m -1.4% -1.3% -2% -1.2% -2.2% -3% £(60)m -2.8% -2.8% -2.6% -3.4% -4% £(80)m -5% £(100)m -6% Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 Period e
Slide 41: Underlying effective tax rate
Underlying effective tax rate , FY 2014 FY 2013 Tax rate Tax rate £m PBT Tax PAT (%) PBT Tax PAT (%) Group, excluding JVs & associates* (135) 2 (133) 1.5 60 (28) 32 46.7 JVs & associates* 70 (15) 55 21.4 80 (9) 71 11.3 Aggregate* (65) (13) (78) (20.0) 140 (37) 103 26.4 * Before non-underlying items
Slide 42: Infrastructure Investments
Infrastructure Investments FY 2014 FY 2013 JVs & JVs & £m Group assoc Total Group assoc Total UK† 2 40* 42 2 27* 29 North America 15 6 21 21 6 27 Infrastructure Fund - - - (2) - (2) Infrastructure (2) - (2) (3) - (3) Bidding costs and overheads (27) - (27) (31) - (31) Pre-disposals operating profit
Slide 43: Investment portfolio valuation
Investment portfolio valuation £40m £1,300m £115m £376m £337m £73m £766m £19m £769m £78m £26m £58m £92m £248m £232m £159m £963m £534m £521m Dec Equity Distributions Disposal Gain on Discount New Operational Dec Projected Change in Macro- Dec 2013 invested received proceeds disposals unwind project p
Slide 44: Pensions charge
Pensions charge £m FY 2014 FY 2013 Defined benefit schemes: P&L charge – service cost 7 26 Expected return on assets (119) (107) Interest cost on scheme liabilities 135 116 Net finance charge 16 9 Net pension charge 23 35 Defined contribution schemes: P&L charge 52 36 Total charge 75 71 From continu
Slide 45: Net interest cost
Net interest cost £m FY 2014 FY 2013 Subordinated debt interest receivable 29 25 Interest on PPP financial assets 26 Interest on non-recourse borrowings (20) 6 5 Net finance costs – pension schemes (16) (9) Other interest receivable 9 Other interest payable (17) (8) (15) US private placement (10) (9
Slide 46: Group balance sheet
Group balance sheet £m FY 2014 FY 2013 Goodwill and intangible assets 1,042 1,252 Current assets# 1,698 1,956 Current liabilities and provisions# (2,429) (2,506) Working capital# (731) (550) Net cash/(debt) (excluding infrastructure concessions) 219 (66) PPP financial assets 559 455 Infrastructure c
Slide 47: Balance sheet cash movement
Balance sheet cash movement £m FY 2014 FY 2013 Opening net cash† (66) 35 Cash used in operations† (345) (165) Dividends from JVs and associates 56 48 Capital expenditure and financial investment (135) (26) Acquisitions and disposals (net of net cash disposed) 857 150 Dividends, interest and tax paid