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Balfour Beatty plc Interim Results For The Half-Year Ending 29 June 2002

Financial Highlights

• Pre-tax profits* up by 17% at £48 million (2001: £41 million)


• Earnings per share* up by 15% at 6.3p (2001: 5.5p)


• £41 million period-end net cash – strong operating cash flow


• Record period-end order book of £4.8 billion


• Interim dividend increased to 2.35p (2001: 2.2p)

* before exceptional items and goodwill amortisation

Operational Highlights

• Worldwide rail profits improve significantly


• Major orders secured in US infrastructure, UK utilities and road maintenance


• Preferred bidder status achieved for acquisition of 49% of Romec


• Formal opening of new PPP health facilities in Edinburgh and Durham


• Acquisitions perform well – Kentons and Knox Kershaw strengthen core businesses


• Board and management structure strengthened

Outlook

“It is pleasing to be able to report further good progress in Balfour Beatty’s profits and earnings in the first half of 2002. Once again operating cash flow was strong.

“We are confident in delivering further progress in 2002 and retaining our forward momentum thereafter.

“We remain focussed on sustained increases in shareholder value through organic growth and, where appropriate, from acquisitions which complement our existing businesses and rely for their success on the application of our existing core competences.”

Viscount Weir, Chairman

Mike Welton, Chief Executive

BALFOUR BEATTY PLC

INTERIM RESULTS FOR THE HALF-YEAR ENDING 29 JUNE 2002

Balfour Beatty plc, the international engineering, construction and services group, today announced pre-tax profits before exceptional items and prior to the amortisation of goodwill for the six months to 29 June 2002 of £48 million (2001: £41 million). Earnings per share before exceptional items and goodwill amortisation were 6.3p per Ordinary Share (2001: 5.5p).

Operating profits before goodwill amortisation and exceptional items were £65 million (2001: £59 million).

Net cash stood at £41 million (2001: £63 million) after expenditure of £34 million on acquisitions. The half-year order book stood at £4.8 billion (30 June 2001: £3.9 billion).

Turnover increased to £1.68 billion (2001: £1.44 billion).

The Board has declared an increased interim dividend of 2.35p per Ordinary Share (2001: 2.2p).

In their statement to shareholders, Chairman, Viscount Weir, and Chief Executive, Mike Welton, said:

“It is pleasing to be able to report further good progress in Balfour Beatty’s profits and earnings in the first half of 2002. Once again operating cash flow was strong.

“We are confident in delivering further progress in 2002 and retaining our forward momentum thereafter.

“We remain focussed on sustained increases in shareholder value through organic growth and, where appropriate, from acquisitions which complement our existing businesses and rely for their success on the application of our existing core competences.”

Chairman and Chief Executive's Statement

It is pleasing to be able to report further good progress in Balfour Beatty’s profits and earnings in the first half of 2002. The first half of the year has been a particularly successful period for the Group in securing major orders. These include long-term contracts for road maintenance and gas and water utilities in the UK and rail and large-scale infrastructure work in the USA, including a $1.4 billion toll road in Texas.

Final contracts are expected to be exchanged shortly which will bring the Group a 49% share of a £1.3 billion, seven-year project to manage and maintain Consignia’s entire estate of some 3,000 buildings.

The Group continued to develop its growth business sectors through acquisition. During the period, we acquired the UK utility services contractor, Kentons, for a consideration of £28 million and Knox Kershaw, a US rail maintenance and equipment contractor, for $6 million, both of which are performing to expectations. We also made a further stage payment for the acquisition of Integral Technologies, the US security systems business.

Business Sectors

Building, Building Management and Services

Profits in this sector at £21 million showed a slight decline against the same period last year following the 50% advance of the previous year.

Performances in the UK-based operating companies were, in each case, broadly comparable with those of last year. While the UK market for building construction remained generally flat, our building and building services businesses performed well and the trend to increased building management outsourcing continued.

Although less strong than in the first half of 2001, our US markets were stable. Andover Controls, the Group’s US-based building management control company, performed well, although profits were somewhat lower than in the first half of last year.

In April, Haden Building Management was appointed preferred bidder for the acquisition of a 49% interest in Romec, the business responsible for managing and maintaining Consignia’s nationwide estate of some 3,000 buildings. This transaction involves the award of a £1.3 billion, seven-year contract with Consignia and a share of a range of other work for existing external customers.

Civil and Specialist Engineering and Services

Profits in this sector rose by £1 million to £7 million.

There were improved performances in Major Projects and in Power Networks and strong profit contributions from Kennedys and Kentons, the newly-acquired utility services businesses. Results continued, however, to be impacted by cost recognition on projects being undertaken by Balfour Beatty Construction Inc in the US, which, in line with our normal accounting approach, have been subject to further write-downs. No account has been taken of any potential future settlements.

A number of major new contracts were secured. These included a $1.4 billion toll road project in Texas and a $110 million water tunnel in Rhode Island in the USA. In the UK, over £450 million of long-term local authority road maintenance work was secured, together with system rehabilitation contracts for Yorkshire Water worth over £120 million. The latter work is to be shared equally between John Kennedy and Kentons.

Together with Balfour Beatty Power Networks, the Group now has UK utility services businesses for gas, water and electricity, with annual sales of approximately £280 million and an order book of over £500 million. These markets are set to grow as outsourcing becomes more prevalent and spend programmes for asset renewal increase.

Rail Engineering and Services

Profits in this sector at £16 million showed a marked improvement over the first half of last year (2001: £7 million).

The companies which we have acquired in rail electrification and power systems in Europe and in trackwork and maintenance in the USA significantly improved their performance. Also, the UK maintenance business returned to modest profitability following the losses incurred during the final period of the previous contract regime last year.

New models for the management and execution of maintenance work in the UK are currently being explored with Railtrack and other contracting organisations.

The development of future workflows progressed satisfactorily. In the US, over $300 million of new rail and rail-related contracts were won. These included a multi-disciplinary turnkey design and build project for the re-establishment of the Greenbush Line Rail Corridor for the Massachusetts Bay Transportation Authority in Boston, USA, and the rail maintenance contract for the Alameda Corridor in Los Angeles, the first US heavy haul freight maintenance contract awarded to an independent contractor. More recently, we also secured a major contract for the first stage of the electrification of the Milan-Turin line.

In the UK, preferred bidder status was achieved for both the £200 million permanent way and electrification infrastructure package for Thameslink 2000 in London and the £46 million contract for the trackwork, traction power and associated mechanical and electrical works for Heathrow Airport Terminal 5.

Investments and Developments

Profits in this sector at £21 million were £2 million lower in the first half-year (2001: £23 million).

Profits in Barking Power Ltd, in which the Group has a 25.5% interest, fell, as planned maintenance somewhat reduced its availability to the market in the period. Its availability should return to more normal levels in the second half of the year.

However, profits in Balfour Beatty Capital Projects, the Group’s vehicle for PPP investments, rose as concession income grew. Bid costs also increased. It should be noted that certain bid costs which have previously been written off under Balfour Beatty’s accounting policies were capitalised, as required by the new accounting standard, UITF 34.

Balfour Beatty has hitherto taken a conservative approach in writing off all bid costs, including those incurred after appointment as preferred bidder, and has then taken them back to profit upon recovery at financial close. In consequence, the impact of applying this standard is negligible on both the Group’s historic results and those for 2003 onwards. However, on financial close, approximately £3 million of anticipated income in respect of the Metronet concessions and Blackburn Hospital will be deferred to future years.

Negotiations to bring Metronet’s two London Underground Public Private Partnership concession contracts and the Blackburn Hospital project to financial close continued. Bidding activity is strong, with a number of major road and hospital projects being pursued as well as some smaller projects in other markets.

During the first half of the year, the first phase of the new Edinburgh Royal Infirmary was successfully handed over to the Trust and North Durham Hospital, which has been in full clinical operation since last year, was formally opened by the Prime Minister.

The Board

As a result of the Group’s substantial growth in size and scope in the recent past and our determination to continue to grow shareholder value, the new post of Chief Operating Officer, reporting to the Chief Executive, has been created. Ian Tyler, previously Finance Director, takes up this position with effect from today and has been succeeded by Anthony Rabin, who has over the last five years been very successful in growing Capital Projects, our PFI business.

Alistair Wivell, who has successively improved the performance and profits of Balfour Beatty Construction over the last decade, also joins the Board today as Group Managing Director with responsibility for Building, Building Management and Services. In that capacity, he succeeds Paul Lester, who left the company in June to take up the position of Chief Executive of VT Group plc with our thanks and good wishes.

During the first half of the year, it was announced that Sir David Wright, who is currently Group Chief Executive of British Trade International, will join the Board as a non-executive Director on 1 January 2003.

Outlook

We are confident of delivering further progress in 2002 and retaining our forward momentum thereafter. In Building and in Engineering, we anticipate continued progress with the usual bias in profit recognition towards the second half of the year, particularly in the latter. In Rail, we anticipate a continuation of the good results achieved in the first half of the year, particularly from our international businesses. In Investments, concession income should continue to grow and Barking Power Station’s availability to improve.

We have now created strong market positions in UK utilities contracting and in UK facilities maintenance and management to add to similar, existing positions in worldwide rail, Public Private Partnerships, major UK infrastructure contracting and building and building services. These markets continue to offer good growth opportunities.

We remain focussed on sustained increases in shareholder value through organic growth and, where appropriate, from acquisitions which complement our existing businesses and rely for their success on the application of our existing core competences.

Enquiries to:

Mike Welton, Chief Executive
Ian Tyler, Chief Operating Officer
Tim Sharp, Head of Corporate Communications

Tel: 020 7216 6800
www.balfourbeatty.com

High resolution photographs are available to the media free of charge at www.newscast.co.uk (+44 (0)20 7608 1000).

The Interim Report for the six months to 29 June 2002 will be posted on 16 August 2002 to holders of ordinary shares and preference shares. Copies will also be available for members of the public at the Company’s registered office at 130 Wilton Road, London, SW1V 1LQ.

The interim 2002 dividend of 2.35p net will be paid on 2 January 2003 to ordinary shareholders on the register on 1 November 2002, by direct credit or, where no mandate has been given, by cheques posted on 30 December 2002 payable on 2 January 2003. The ordinary shares will be quoted ex-dividend on 30 October 2002.

A preference dividend of 5.375p gross (4.8375p net at current tax rate) per cumulative convertible redeemable preference share will be paid in respect of the six months ending 31 December 2002 on 1 January 2003 to holders of these shares on the register on 22 November 2002 by direct credit or, where no mandate has been given, by cheques posted on 30 December 2002 payable on 1 January 2003. These shares will be quoted ex-dividend on 20 November 2002.

To see the full Interim Results For The Half-Year Ending 29 June 2002 click here: Interim Results 2002 (PDF, 476 KB)

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