Slide 1: 2014 half-year results presentation
2014 half-year results presentation 11 August 2014
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: Steve Marshall, Executive Chairman
STEVE MARSHALL Executive Chairman
Slide 4: Agenda
Agenda Overview Carillion merger proposal and update on PB sale process Steve Marshall Key Group priorities Half-year financial & operating review Duncan Magrath Construction Services UK Nick Pollard Q&A All 3
Slide 5: Overview
Overview Accelerated interim results announcement and rejection of Carillion’s merger proposal Regulatory health warnings during offer period*: ● Confidentiality and Panel constraints on merger related information ● Investments: Directors’ Valuation Key group priorities are set: including an o
Slide 6: Rejection of Carillion's merger proposal
Rejection of Carillion’s merger proposal Entered into for the right reasons; rejected for the right reasons Initial proposal negotiated up-front to benefit Balfour Beatty shareholders; revised proposal does not address concerns Cause of rejection – wholly unexpected decision to retain PB as pa
Slide 7: Parsons Brinckerhoff sale process
Parsons Brinckerhoff sale process Process proceeding in line with Board’s expectations Round 3 bids expected very shortly; strong competitive interest maintained Transaction process is now well advanced Application of proceeds ● Beneficial outcome for shareholders, funders and pension fund ●
Slide 8: Key Group priorities
Key Group priorities Board is committed to restoring shareholder value Group is being refocused to reduce complexity & improve the risk profile: ● Conclude PB sale process at value attractive to shareholders ● Tighten geographic footprint and improve risk profile; strengthened bidding discipline
Slide 9: Key Group priorities
Key Group priorities Recruit outstanding Group CEO to drive recovery Develop longer term strategy around a post-PB Group: ● Strong Anglo-American construction and specialist services presence – significant US market opportunity and UK margin recovery potential ● Investments business is value cre
Slide 10: Duncan Magrath, Chief Financial Officer
DUNCAN MAGRATH Chief Financial Officer
Slide 11: Headline numbers
Headline numbers HY 2014 HY 2013 Actual growth Constant currency Revenue* £4,851m £4,956m - 2% + 2% Underlying profit from operations* £37m £54m - 31% - 25% Pre-tax underlying profit* £22m £47m - 53% Underlying EPS* 3.9p 6.6p - 41% Average borrowings# £(424)m £(298)m Net borrowings# £(364)m £(173)m
Slide 12: Professional Services: Steady performance
Professional Services Steady performance £1.0bn Order book £2.0bn HY14 Growth Constant £0.8bn % £bn v FY13 currency £1.5bn £0.6bn US 50% 0.7 - 4% - 1% £1.0bn £0.4bn RoW 43% 0.6 - 3% - £0.2bn £0.5bn UK 7% 0.1 - 30% - 30% £0.0bn £0.0bn 09HY 09FY 10HY 10FY 11HY 11FY 12HY 12FY 13HY 13FY 14HY Total 100%
Slide 13: Construction Services: UK revenue decline and continuing US pick up
Construction Services UK revenue decline and continuing US pick up £6.0bn Order book £10.0bn HY14 Growth Constant £5.0bn £8.0bn % £bn v FY13 currency £4.0bn US 43% 3.3 - 2% + 1% £6.0bn £3.0bn £4.0bn UK 32% 2.4 - 11% - 11% £2.0bn £1.0bn £2.0bn RoW 25% 1.9 + 22% + 25% £0.0bn £0.0bn 09HY 09FY 10HY 10FY
Slide 14: US construction: Continuing strength in US order intake
US construction Continuing strength in US order intake Book to Bill Ratio ABI Reading $3bn 1.75 65 1.5 60 $2bn 1.25 55 1 50 $1bn 0.75 45 0.5 40 $0bn 0.25 35 H109 H209 H110 H210 H111 H211 H112 H212 H113 H213 H114 June 09 June 10 June 11 June 12 June 13 June 14 Order intake - Building Order intake - I
Slide 15: Support Services: Good wins in AMP6 water cycle and strong transport revenue
Support Services Good wins in AMP6 water cycle and strong transport revenue £3.0bn Order book £5.0bn HY14 Growth £4.0bn % £bn v FY13 £2.0bn Transport 55% 2.2 - 7% £3.0bn £2.0bn Power 35% 1.4 - 11% £1.0bn £1.0bn Water 10% 0.4 + 84% £0.0bn £0.0bn 09HY 09FY 10HY 10FY 11HY 11FY 12HY 12FY 13HY 13FY 14HY
Slide 16: Infrastructure Investments – HY 2014
Infrastructure Investments – HY 2014 Successful period for closes and disposals Achieved Appointed Remain financial close preferred bidder preferred bidder Total University/student accommodation 3 OFTO 2 Hospitals 3 Military housing 1 Transport 1 Total 6(1,2) 1 3 10(1) £97m of proceeds from PPP di
Slide 17: Infrastructure Investments: UK disposal gains over last 30 months
Infrastructure Investments UK disposal gains over last 30 months Directors’ Consideration Valuation Excess* Date Transaction £m £m £m %# 2014 disposals(1) 50% interest in Durham Hospital & 100% 97 53 44 82% interest in Knowsley Schools 2013 disposals(2) 75% interest in CNDR Road, 65% interest in 128
Slide 18: UK Directors' Valuation
Infrastructure Investments UK Directors’ Valuation Detailed revaluation exercise performed on UK PPP portfolio, reflecting recent disposal prices achieved and current market conditions Updated for: ● Revised discount rates ● Revised cash flow assumptions ● Revised macro assumptions (inflation)
Slide 19: Profit from operations – by segment
Profit from operations – by segment Professional Construction Support Infrastructure Corporate Services Services Services Investments activities HY14 HY13 HY14 HY13 HY14 HY13 HY14 HY13 HY14 HY13 26 26 (69) (39) 22 17 72 63 3.2% 3.0% - - 3.6% 2.6% 26.6% 21.4% • Reduced losses in • Poor performance in
Slide 20: Cash used in operating activities
Cash used in operating activities £m HY 2014 HY 2013 Profit from underlying operations 37 54 Share of JV profit (42) (30) Depreciation 23 25 Pension deficit payments (25) (37) Profit on disposal of PPP investments (51) (45) Increase in working capital (191) (153) Other 9 (3) Cash used in continuing
Slide 21: Working capital – £191m outflow on underlying items
Working capital – £191m outflow on underlying items & continuing businesses, inflows expected in HY2 Professional Services, larger than expected Support Services, larger than expected 9.1% 3.5% £150m £50m 4% 5.9% 5.4% 3.8% £100m 5% 2% 2.5% 4.2% £0m 0% -1.5% -5% 0.2% £50m -2.5% -1.4% -1.2% -1.3% -2%
Slide 22: Summary of first half 2014
Summary of first half 2014 Order book stable at £13bn Steady performance from Professional Services Good performance from Investments and Support Services Reduction in performance in Construction Services ● US + RoW good performance ● UK down principally due to Engineering Services ● Recover
Slide 23: Nicholas Pollard, CEO, Construction Services UK
NICHOLAS POLLARD CEO, Construction Services UK
Slide 24: Construction Services UK Overview
Construction Services UK Overview Turnaround plan initiated in 2013 (“The Road Ahead”) ● Initial focus on regional construction STAGE 1 DIAGNOSE & STABILISE ● Entire business has now been reviewed STAGE 2 STRENGTHEN & MONITOR Lead indicators indicate the strategy is starting to work STAGE 3 REAL
Slide 25: Construction Services UK: Regional business
Construction Services UK Regional business 1. Diagnose & stabilise 3. Improve & realign ● Bidding disciplines tightened, including ● More selective contract bidding & early minimum margin hurdles engagement ● “Road Ahead” plan devised and – strengthened bid governance: targeting larger communicated
Slide 26: Regional business – performance improvement
Construction Services UK Regional business – performance improvement June June Jan 2015 2013 2014 target Lead indicators suggest the % of live jobs by value < £5m 42% 34% 15% strategy is starting to work June June Jan 2015 Regional delivery units 2013 2014 target Focusing on larger jobs Profitab
Slide 27: Construction Services UK: Major Projects
Construction Services UK Major Projects 1. Diagnose & stabilise 3. Improve & realign ● Analysis of pipeline ● Some building projects moved to regional ● Building contracts moved to match best ● Order book +6% since HY2013 skill-set ● ABNC & order book combined +26% 2. Strengthen & monitor since HY13
Slide 28: Construction Services UK: Engineering Services
Construction Services UK Engineering Services 1. Diagnose & stabilise – May 2014 ● All contracted projects reviewed ● Bad projects being stabilised, but short term risks remain – majority of loss making contracts due to complete in 2014 – no new external Tier 1 work in London ● Stringent controls of
Slide 29: Construction Services UK: Improvement initiatives
Construction Services UK Improvement initiatives 1. Cost improvement plan already 3. Future initiatives well established ● Identifying and accelerating additional ● £40m reduction in CSUK overhead between procurement initiatives 2011 and 2013 ● Behaviour, beliefs & culture ● However overhead has rem
Slide 30: Construction Services UK: Conclusions
Construction Services UK Conclusions Performance turnaround strategy has been in place since 2013 1. collaborative customer and supply-chain relationships 2. more selective and thoughtful bidding 3. operational excellence in delivery 4. developing and retaining the best people 5. cost base improve
Slide 31: Appendix
APPENDIX Balfour Beatty
Slide 32: Order book position compared with a year ago
Order book position compared with a year ago £4.2bn £4.4bn £4.0bn Total at HY 2014 £13.0bn £0.5bn £3.7bn £0.9bn Total at HY 2013 £13.8bn £0.7bn £3.3bn £0.6bn £3.1bn £2.2bn £3.0bn £1.9bn £2.3bn £2.2bn £3.0bn £2.8bn £0.5bn £2.6bn £0.6bn £1.5bn £1.1bn £0.8bn £0.7bn £0.7bn £0.5bn £0.5bn £0.5bn £0.2bn £0
Slide 33: Infrastructure Investments: Change in IFRIC 12 estimates
Infrastructure Investments Change in IFRIC 12 estimates Affects PPP investments classified as financial assets Present value of change in forecast cash flows recognised immediately through the income statement Effect in HY 2014: ● £15m increase in HY14 profit from operations ● £1m increase in
Slide 34: Discontinued businesses: Rail
Discontinued businesses Rail Germany/Scandinavia/Spain/Italy FY 13* HY 2014 HY 2013* Actual growth Constant currency £588m Order book £350m £685m - 40%# - 40%# £424m Revenue £127m £198m - 36% - 37% £(26)m Underlying loss before tax £(13)m £(22)m Non-underlying items: £(38)m – non-cash impairment £(3
Slide 35: Non-underlying items
Non-underlying items FY 13 £m HY 2014 HY 2013 30 Amortisation of acquired intangible assets 10 16 52 Restructuring and reorganisation costs 4 23 17 Cost of implementing UK and US shared service centres 6 11 - JV goodwill impairment in respect of Middle East 1 - 4 Post acquisition integration, reorga
Slide 36: Underlying effective tax rate
Underlying effective tax rate FY 2013 HY 2014 HY 2013 Tax rate (%) £m PBT Tax PAT Tax rate (%) PBT Tax PAT Tax rate (%) 43% Group, excluding JVs & associates* (20) 5 (15) 24% 17 (2) 15 12% 11% JVs & associates* 52 (10) 42 19% 36 (6) 30 17% 30% Aggregate* 32 (5) 27 16% 53 (8) 45 15% Less JV tax* (10)
Slide 37: Group balance sheet
Group balance sheet £m June 2014 Dec 2013 June 2013* Goodwill and intangible assets 1,213 1,252 1,307 Current assets# 2,217 1,956 2,066 Current liabilities and current provisions# (2,563) (2,506) (2,700) Working capital# (346) (550) (634) Net assets held for sale 26 12 154 Net borrowings (excluding
Slide 38: Balance sheet cash movement
Balance sheet cash movement £m June 2014 June 2013 Opening net cash† (66) 35 Cash used in operations†* (289) (237) Dividends from JVs and associates 14 13 Capital expenditure and financial investment (incl. JV disposed) (45) 29 Acquisitions and disposals (net of net cash acquired / disposed) 26 (21)
Slide 39: Working capital – Professional Services
Working capital – Professional Services £150m 9.1% £130m 10% 5.9% £110m 3.8% 5% £90m 4.2% 5.4% 2.5% 0% £70m -2.5% -1.5% -5% £50m £30m -10% £10m -10.7% -15% £(10)m -20% £(30)m £(50)m -21.6% -25% Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Period e
Slide 40: Working capital – Support Services
Working capital – Support Services 3.5% 4% £40m 3% £20m 2% 1% £0m 0% £(20)m 0.2% -1% £(40)m -1.4% -1.2% -1.3% -2% -2.2% -3% £(60)m -2.8% -2.6% -2.8% -4% -3.4% £(80)m -5% £(100)m -6% Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Period end working c
Slide 41: Working capital – Construction Services US
Working capital – Construction Services US 0 0 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 £(50)m -2% £(100)m -4% £(150)m -6% £(200)m -6.0% -5.9% -5.8% -8% -8.2% -7.1% £(250)m -10% -9.2% £(300)m -12% -11.8% £(350)m -14% -13.3% -13.7% £(400)m -16%
Slide 42: Working capital – Construction Services UK
Working capital – Construction Services UK £(200)m -5% Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 £(300)m -7% £(400)m -9% £(500)m -11% -12.7% £(600)m -13% -14.7% £(700)m -13.9% -15% -15.7% -15.0% £(800)m -15.3% -17% -16.7% £(900)m -17.4% -19% -1
Slide 43: Net cash/(debt) balances
Net cash/(debt) balances† £800m £600m £400m £200m £0m £(200)m £(400)m £(600)m £(800)m £(1,000)m Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Available cash Restricted cash Borrowings US PP Convertible bond Net cash/(debt)* 6-monthly average* † excluding
Slide 44: Available funds
Available funds £1400m £1200m £1000m £800m £600m £400m £200m £0m Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Available cash Available under committed facilities 43
Slide 45: Pensions – balance sheet movement
Pensions – balance sheet movement Pension deficits, net of tax Deferred tax assets £586m £166m £441m £434m £5m £163m £3m £397m £67m £120m £275m £333m £94m £86m £27m £79m £85m £61m £420m £75m £340m £394m £321m £311m £374m £336m £200m £254m Dec Dec Dec Dec Dec Service Company Actuarial Actuarial Other