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Alfred McAlpine plc | Annual Report & Accounts 2003 Report of the Directors 21
Report of the Directors
The Directors present their Annual Report and the audited accounts for the year ended 31st December, 2003.
Principal Activities The Group provides infrastructure, construction and business services, principally in the UK. The operations of the Group are reviewed on pages 6 to 17 of this report.
Profits and Dividends The Group profit for the year attributable to shareholders amounted to £22.8m (2002: £14.4m) after tax and goodwill.
The Directors recommend the payment of a final dividend of 6.5p per ordinary share which, together with the interim dividend of 4.5p already paid, makes a total of 11p per ordinary share for the financial year. If approved at the Annual General Meeting (‘AGM’) to be held on 20th May, 2004, the final dividend will be paid on 28th May, 2004 to those shareholders on the register at close of business on 7th May, 2004.
After provision for these ordinary dividends and dividends of £0.4m paid to preference shareholders, the retained profit of £11.5m (2002: £3.6m) has been transferred to reserves.
Post Balance Sheet Event On 6th February, 2004, the Group acquired the entire issued share capital of UK Power Construction Limited for a total cash consideration of £5.2m.
Substantial Interests At 22nd March, 2004, the following interests in 3% or more of the Company’s ordinary share capital had been notified to the Company:
Number of shares Percentage held %
Fidelity International Limited 5,262,986 5.13 Zurich Financial Services 5,105,000 4.98 Aviva plc 4,185,713 4.08 Legal & General Group Plc 3,538,268 3.45 Standard Life Investments 3,159,675 3.08
Directors Present members of the Board are shown on pages 18 and 19.
Mr R E Hough and Mr P H Swatman were appointed as Non-Executive Directors on 13th March, 2003. Mr A M Robb retired as a Non-Executive Director on 22nd May, 2003 and Mr J Hume resigned as a Director on 30th October, 2003. Mr D Lavelle was appointed as a Director on 30th October, 2003. With the exception of Mr P V Carolan, who was not appointed until after the year end, the other Directors served throughout the year. Mr I M Grice was appointed Group Chief Executive on 10th August, 2003, and since that date Mr G O Whitehead has served as Non-Executive Chairman.
In accordance with the Company’s Articles of Association, Mr Whitehead and Mr M D Swan retire by rotation and, being eligible, offer themselves for re-election. Mr Lavelle, having been appointed by the Board during the year, offers himself for re-appointment, as does Mr Carolan, who was appointed by the Board on 11th March, 2004.
Details of the Service Contracts of the Directors standing for re-election or re-appointment appear in the remuneration report on page 25.
None of the Directors had a beneficial interest in any contract or arrangement of significance to which the Company or any of its subsidiaries was a party during the year.
Details of the Directors’ interests in shares in the Company appear in the remuneration report on pages 23 to 27.
The Group maintains Directors’ and Officers’ liability insurance.
Related Party Transactions Details of transactions with related parties undertaken by the Group during the year are disclosed in note 28 on page 55.
Employees It is the Group’s policy to communicate with and involve employees on matters affecting their interests at work, and inform them of the performance of the business. Further details of the Group’s policy on this can be found in the Human resources review on pages 12 and 13.
It is also Group policy to treat all employees and potential employees equally and to give full consideration to suitable applications for employment from disabled persons, where they have the necessary abilities and skills for the position, and wherever possible to re-train employees who become disabled, so that they can continue their employment in another position.
The Company operates an all-employee savings-related share option scheme, the principal aim of which is to encourage eligible employees to purchase shares in the Company. On 6th August, 2003, invitations to participate in this scheme were issued to all UK employees who had joined the Group on or before 1st May, 2003. Options over a total of 2,583,832 shares were granted to 1,788 participants on 27th August, 2003. At 31st December, 2003 there were 1,800 (2002: 315) employees participating in this scheme, full details of which are set out in note 21 on page 50. 735427 pp21-pp22 6/4/04 12:58 pm Page 22
Alfred McAlpine plc | Annual Report & Accounts 2003 22 Report of the Directors | continued
Donations Charitable donations of £36,000 (2002: £56,106) were made during the year. These included: £10,000 to Crisis at Christmas; £9,000 to CRASH; and £4,000 to The Lighthouse Club – these latter two donations were to charities directly associated with the construction industry; and donations ranging from £25 to £2,000 were also made to a wide variety of other charities. No political donations were made.
Share Capital On 25th June, 2003, 507,324 shares were allotted as part-consideration for the acquisition of AIMS Group Services Limited. Since the last AGM, no other offer has been made or agreement entered into which would require shares to be issued, other than in connection with the Executive Share Option Schemes, the Savings Related Share Option Scheme and the Restricted Share Plan.
During the year, 350,000 ordinary shares were purchased by the Trustee of the Alfred McAlpine Employee Benefit Trust for a total net consideration of £938,750 (nominal value £87,500). A further 1,269,880 shares were subscribed for at par by the Trustee and allotted on 4th December, 2003. At 31st December, 2003, the Trustee held 2,450,340 ordinary shares, being approximately 2.39% of the Company’s issued ordinary share capital.
At 31st December, 2003, the authority granted at the AGM held on 22nd May, 2003 to enable the Company to purchase up to 10,323,490 ordinary shares, representing 10% of its then issued ordinary share capital, was still valid. During the year, 3,555,000 ordinary shares with a nominal value of £888,750 and representing 3.5% of the Company’s issued ordinary share capital as at 22nd May, 2003 were purchased for an aggregate net consideration of £9,537,800 and subsequently cancelled under this authority. The authority expires at the conclusion of the AGM to be held on 20th May, 2004, and a resolution to renew the authority in full will be put to shareholders at that meeting.
Auditors PricewaterhouseCoopers LLP have confirmed their willingness to continue in office, and a resolution concerning their re-appointment and remuneration will be proposed at the AGM.
Supplier Payment Policy It is the policy of both the Company and the Group to make payment on their standard terms to suppliers unless alternative terms are agreed. The Company and the Group both seek to abide by these payment terms, provided that they are satisfied that the supplier has complied with the agreed terms and conditions. The Company’s average creditor days during the year were 30 (2002: 33).
Annual General Meeting The AGM of the Company will be held in the Redgrave Suite at the Barbican Centre, Silk Street, London EC2 on 20th May, 2004 at 12 noon.
Full details of the business of the meeting, together with an explanatory note on the resolutions proposed, are contained in the enclosed Notice of Meeting.
By Order of the Board
G J Forster Group Company Secretary 22nd March, 2004 735427 pp23-pp27 6/4/04 12:59 pm Page 23
Alfred McAlpine plc | Annual Report & Accounts 2003 Remuneration report 23
Remuneration report
The auditable part of the remuneration report is set out on pages 26 to 27.
INFORMATION NOT SUBJECT TO AUDIT Membership and Constitution of the Remuneration Committee The Remuneration Committee, comprising the Non-Executive Directors (Mr C D Collins, Mr R E Hough, Mr P H Swatman and, until his retirement on 22nd May, 2003, Mr A M Robb), makes recommendations to the Board on the Company’s overall framework for the remuneration of Executive Directors and certain key senior executives, and also determines their individual remuneration packages (including pension rights and compensation payments). The Committee consults the Group Chief Executive on the remuneration of the Executive Directors and senior executives, and is assisted by the Group Company Secretary. Inbucon-Meis Limited act as advisor to the Committee and also, when required, to the Company in respect of executive remuneration and share schemes. Mercer Human Resources Consulting Limited advise the Company on pension matters. Inbucon-Meis and Mercer do not provide other services to the Group and neither the Committee nor the Company is aware of any conflict of interest.
Compliance The Committee is constituted and operates in accordance with the provisions of the Combined Code, as adopted by the UK Listing Authority and annexed to the Listing Rules (‘the Code’). In preparing this report the Board has complied with the provisions of the Code.
Executive Remuneration Policy and Structure The Group’s aim is to provide remuneration packages that are sufficient to attract, motivate and retain Executive Directors of a high calibre. To this end, surveys and external advice are instrumental in the annual review of salary and benefits packages. The Committee believes that base salary and benefits for Executive Directors should represent a fair return for employment, but that the total reward for Executive Directors should be derived substantially from the performance-related elements of the remuneration package (annual bonus and Restricted Share Plan awards).
Performance-related elements form a significant proportion of the Executive Directors’ total remuneration packages, aligning their interests with those of the shareholders and providing incentives for performance. In designing schemes for performance-related remuneration, the Committee follows the provisions of the Code. Due consideration is given to performance relative to comparable companies.
There have been no amendments to the terms and conditions of any entitlement of a Director under the long-term incentive scheme (the Restricted Share Plan) during the year.
Performance Chart The chart below compares the growth in value of £100 invested in ordinary shares in Alfred McAlpine plc on 1st January, 1999 with the performance of a similar investment in the shares of the constituents of the FTSE Construction and Building Materials Index and the FTSE Support Services Index. The Directors are of the view that these constitute a relevant broad equity market index.
350 Cumulative total shareholder return % 300 Alfred McAlpine plc FTSE Construction and Building Materials 250 x FTSE Support Services 200 150 x x 100 x x x x 50 01/01/99 31/12/99 31/12/00 31/12/01 31/12/02 31/12/03
Basic Salary The salary of each Executive Director is determined by the Committee, taking into account his personal performance and the prevailing rates in the employment market for executives of comparable status, responsibility, skill and position in other companies. When determining Directors’ salaries the Committee is always sensitive to pay and employment conditions throughout the Group. Independent remuneration surveys are commissioned when required to substantiate salary levels.
Annual Bonus The Committee determines annual bonuses on the basis of improvement over the prior year. Potential bonus for the Executive Directors is based on profit before tax and amortisation compared with target. This is relevant, stretching and designed to enhance the business. The maximum bonus achievable is 50% of salary. The Committee reviews the targets for the Executive Directors annually.
Pensions Policy With effect from 31st July, 2003, the Alfred McAlpine Pension Plan (‘the Pension Plan’) was closed to new entrants. Members of this final salary Pension Plan as at that date retain the link to pensionable salary at their eventual date of leaving in respect of service up to 31st July, 2003, but have ceased to accrue benefits within the Pension Plan in respect of service after 31st July, 2003. During 2003, the Group contributed £5.2m (2002: £4.5m) to the Pension Plan, and from 1st January, 2004, it will make an index-linked contribution to the Pension Plan of £3.85m per annum. Employee contributions into the Pension Plan ceased with effect from 1st August, 2003.
On 1st August, 2003, the Company introduced the McAlpine 2003 Pension Plan (‘the 2003 Pension Plan’), which is a contracted-in defined contribution pension arrangement. The 2003 Pension Plan is operated on behalf of the Company by Eagle Star and is subject to the Stakeholder Pensions regulations. The minimum employee contribution is 3% of basic salary. Employees may elect to pay additional contributions, some of which will be matched by the Company, depending on the grade of the employee. 735427 pp23-pp27 6/4/04 12:59 pm Page 24
Alfred McAlpine plc | Annual Report & Accounts 2003 24 Remuneration report | continued
The average Company contribution equates to 5.3% of basic salary (£1.79m for the five month period). Life assurance cover of four times basic salary is provided to members of the 2003 Pension Plan, whilst in service with the Group. Dependants’ pensions are provided on a member’s death in service or in retirement. In addition, former members of the final salary Pension Plan are currently provided with a further life assurance cover of two times basic salary, on death in service, which must be used to provide a dependant’s pension.
All pension benefits are subject to Inland Revenue limits. It is the Group’s policy to provide those executives who joined the Company after May 1989, and who are subject to the earnings cap (£99,000 in the 2003/04 tax year), with appropriate pension benefits outside the pension arrangements outlined above in relation to that part of their salary which exceeds the cap. Executive Directors retire at age 62.
The Remuneration Committee takes into consideration the impact of basic salary increases upon pension and associated employment costs.
Share Schemes The Company currently operates the Alfred McAlpine Executive Share Option Scheme 2000 (‘the ESOS 2000’) and the Alfred McAlpine plc Restricted Share Plan (‘the Restricted Share Plan’), both of which are performance-related. The ESOS 2000 replaced the Alfred McAlpine Executive Share Option Scheme (1991) (‘the ESOS 1991’), under which a number of options are still outstanding, the final grant having been made in April 2000.
The Group also operates an all-employee share scheme, the Alfred McAlpine Savings Related Share Option Scheme 1998, further details of which may be found in note 21 on page 50.
There are no plans to grant discretionary options to Executive Directors who receive awards under the Restricted Share Plan.
The Restricted Share Plan The Restricted Share Plan was approved by shareholders on 22nd May, 1996 and no initial awards may be made after the tenth anniversary of its adoption. Restricted Share Plan awards are subject to performance conditions intended to link participants’ interests with those of the shareholders by encouraging an increase in the total shareholder return (‘TSR’) of the Group relative to a peer group of companies and also in the long-term earnings per share (‘EPS’) of the Group.
The Committee believes that TSR and EPS are appropriate performance measurements, being two key long-term indicators of a company’s success. It is the current intention of the Committee that these performance measurements continue to apply.
Awards made under the terms of the Restricted Share Plan represent a conditional right to receive ordinary shares in the Company, provided that the Company achieves specific performance criteria and the participant remains in the Group’s employment. The maximum value (based on market value at date of award) of shares over which an initial award may be made to a participant in any year may not exceed 50% of salary. Typically, initial awards are made each year following the preliminary announcement of the full-year results. Initial awards may be made at other times, when the Committee believes them to be justified.
The performance criterion currently used to determine the vesting of the initial awards is TSR, which is calculated by taking the percentage increase in the average mid-market ordinary share price of the Company for the three-year period from the date of award, plus the value of the reinvested dividends. The Company’s performance is then measured against that of a peer group of companies, the majority of which are direct competitors. As shown below, the peer group was amended following the sale of the Homes business on 1st October, 2001.
Original comparator companies (to 2001): AMEC p.l.c. Costain Group PLC Montpellier Group Plc Taylor Woodrow plc Beazer Group Plc* Interserve Plc Morrison Construction Group plc* Wainhomes* Birse Group plc Kier Group plc Persimmon plc Westbury plc Bryant Group plc* John Laing plc Speedy Hire plc George Wimpey PLC * Beazer Group Plc, Bryant Group plc, Morrison Construction Group plc and Wainhomes were all taken over after the start of the performance periods for the Restricted Share Plan awards. Wainhomes is not included as a comparator company for awards made after 1999. Current comparator companies (2002 onwards): Amey plc* Birse Group plc Interserve Plc MITIE Group PLC W S Atkins plc Costain Group PLC Jarvis plc Morgan Sindall plc Balfour Beatty plc Galliford Try plc Kier Group plc Serco Group plc * Amey plc ceased to be listed on the London Stock Exchange on 26th June, 2003, following its acquisition by Ferrovial Servicios SA. Vesting may take place from the third anniversary of the initial award date. No awards vest if the Company’s performance is below the 50th percentile. Vesting starts at the 50th percentile, and 100% of the initial award can vest at the 40th percentile. Vesting is on a straight-line basis between the 50th and the 40th percentile. If the Company’s performance exceeds the 40th percentile, the number of shares represented by the award increases on a proportionate basis, so that at the 1st percentile 150% of the number of shares under the initial award may vest. These additional rights are known as exceptional performance awards. The rules allow for re-testing between the third and seventh anniversaries of the initial award date. Vesting may be deferred for a further period of three years in the Alfred McAlpine Employee Benefit Trust (the Employee Benefit Trust). At the end of this deferral period, the deferred awards may be matched on a one-for-one basis subject to satisfaction of a further performance target. This second performance target requires the growth in EPS of the Company to exceed the growth in RPI by 9% or more over the three-year deferral period. The Trustee of the Employee Benefit Trust has waived its entitlement to dividends. Where a participant has elected to defer vesting, the Company makes discretionary cash payments to the participant, which are equivalent to the dividends that would normally be payable on the number of shares corresponding to the award. 735427 pp23-pp27 6/4/04 12:59 pm Page 25
Alfred McAlpine plc | Annual Report & Accounts 2003 Remuneration report | continued 25
‘ESOS 2000’ Executive Share Option Scheme Senior executives are granted discretionary options over ordinary shares in the Company, at the market price prevailing at the date of grant. The performance condition for the ESOS 2000 requires the Company’s earnings per share growth to exceed the growth in the Retail Price Index (RPI) by not less than 3% per annum over a rolling three-year period in order for the options to be exercised. The Committee believes that this performance condition is appropriate and sufficiently demanding.
Directors’ Service Agreements and Contracts When appointing new Executive Directors, the Committee considers it appropriate to offer a one-year service agreement. When Mr Grice assumed his new role as Group Chief Executive, the Committee considered it appropriate to offer him an initial two-year service agreement, reducing to a rolling one-year agreement on 10th August, 2004. Details of the Executive Directors’ service agreements are set out below: Effective date Unexpired Notice period Notice period Executive Directors of contract term by Company by Director I M Grice 10/08/03 17 months 17 months 12 months P V Carolan 11/03/04 12 months 12 months 12 months D Lavelle 30/10/03 12 months 12 months 12 months M D Swan 01/05/02 12 months 12 months 12 months The service agreements for the Executive Directors contain a provision allowing either party to terminate the agreement with immediate effect during the period of 90 days following a change of control of the Company, whereupon a predetermined amount shall be payable to the Director. There are no other provisions for compensation on early termination. Mr Grice, Mr Carolan, Mr Lavelle and Mr Swan each have a retirement age of 62.
Brief details of the contracts between the Company and the Non-Executive Directors are set out below. There are no provisions for compensation on early termination of these contracts. Effective date Unexpired Notice period Notice period Non-Executive Directors of contract term by Company by Director C D Collins 07/09/03 30 months 6 months 6 months R E Hough 13/03/03 24 months 6 months 6 months P H Swatman 13/03/03 24 months 6 months 6 months G O Whitehead (Chairman)(i) 10/08/03 29 months 12 months 12 months (i) The Company provides certain benefits for Mr Whitehead (private medical insurance, life insurance, disability insurance, fully-expensed car and pension contributions) that are not provided to the other Non-Executive Directors.
Directors’ Interests Directors and all senior executives are encouraged to accumulate a shareholding broadly equivalent to one year’s salary and to retain their shares after exercising share options or after vesting under the Restricted Share Plan, subject to the need to fund the acquisition of the shares and any associated tax liability.
The beneficial interests of the Directors and their immediate families in the share capital of the Company at 31st December, 2003 were as follows: Executive share Restricted Share Savings-related Ordinary shares options Plan awards share options Preference shares 2003 2002 2003 2002 2003 2002 2003 2002 2003 2002 C D Collins 30,000 30,000 – – – – – – – – I M Grice 203,220 20,421 – – 268,652 371,215 4,442 14,870 – – R E Hough(i) 750 750 – – – – – – 2,000 2,000 D Lavelle(i) 5,000 – – – 35,000 – – – – – M D Swan 3,500 – – – 76,111 35,000 – – – – P H Swatman(i) – – – – – – – – – – G O Whitehead 470,039 198,811 120,000 255,968 312,276 599,579 – – – – (i) The interests of Mr Hough, Mr Swatman and Mr Lavelle are stated as at date of appointment and as at the year end.
The Alfred McAlpine Employee Benefit Trust was established in 1998 and may benefit employees, including the Executive Directors, of the Company. The Trust is able to subscribe for or purchase shares to fulfil obligations under any of the Company’s share schemes. The Trustee is Mourant and Co Trustees Limited, based in the Channel Islands. As at 31st December, 2003 the Trust held 2,450,340 ordinary shares in the Company. As potential beneficiaries, the Executive Directors are each deemed to have a beneficial interest in all of the shares held in the Trust.
At the date of his appointment, Mr Carolan’s interest in shares in the Company comprised 301,844 ordinary shares and 77,030 initial awards under the Restricted Share Plan.
There have been no changes in Directors’ interests between the year end (31st December, 2003) and 22nd March, 2004 save that Mr R E Hough purchased 4,250 ordinary shares on 12th March, 2004 taking his total holding to 5,000 ordinary shares. 735427 pp23-pp27 6/4/04 12:59 pm Page 26
Alfred McAlpine plc | Annual Report & Accounts 2003 26 Remuneration report | continued
INFORMATION SUBJECT TO AUDIT The auditable part of the remuneration report (as defined in Part 3, Schedule 7A to the Companies Act 1985) is contained in the following tables and accompanying notes.
The Executive Directors are eligible for various taxable benefits, which include a fully expensed company car, membership of private medical schemes and life assurance premiums in respect of salary above the earnings cap.
Directors’ Remuneration for the Year Ended 31st December, 2003 Defined Contribution Pension Plans (including FURBS) Tax on Payments FURBS Total Salaries/ to former Taxable Pension(i) Company pension Company fees Director benefits Bonus supplement Total Total contributions benefits cost 2003 2003 2003 2003 2003 2003 2002 2003 2003 2002 £000 £000 £000 £000 £000 £000 £000 £££
Executive Directors I M Grice(ii) 251 – 19 150 43 463 297 75,489 43,451 69,875 D Lavelle(iii) 37 – 2 18 7 64 – ––– M D Swan 185 – 16 93 47 341 118 23,333 – – G O Whitehead (as Chief Executive)(ii) 238 – 17 120 – 375 507 59,909 23,568 99,280 (as Chairman) 77 – 9 – – 86 38 95,000 38,950 – Non-Executive Directors C D Collins 27 – – – – 27 27 ––– R E Hough(iv) 22 – – – – 22 – ––– P H Swatman(iv) 22 – – – – 22 – ––– Former Directors J Hume(v) 183 55 25 92 – 355 296 43,637 29,128 78,090 A M Robb(vi) 13 – – – – 13 32 ––– Total Board 2003 1,055 55 88 473 97 1,768 – 297,368 135,097 – Total Board 2002 (including former Directors) 1,067 0 89 260 33 – 1,449 – – 247,245 (i) Neither Mr Lavelle nor Mr Swan has a FURBS. The Company makes a supplementary payment to each of them, enabling them to make their own provision for pension in respect of salary above the earnings cap. (ii) Mr Grice became Group Chief Executive on 10th August, 2003 as successor to Mr Whitehead. (iii) Appointed 30th October, 2003. (iv) Appointed 13th March, 2003. (v) Mr Hume resigned as a Director on 30th October, 2003. In mitigation of Mr Hume’s contractual entitlement to two years’ notice under the terms of his service agreement dated 1st October, 1998, the Committee agreed it was appropriate to continue payment of salary and benefits to Mr Hume on a month by month basis. In the eventthat Mr Hume commences employment elsewhere prior to the expiry of his two-year notice period on 30th October, 2005, the Company will make a lump sum payment to Mr Hume equivalent to 50% of the salary and benefits then outstanding under his notice period. (vi) Retired 22nd May, 2003.
Directors’ Pension Arrangements for the Year Ended 31st December, 2003 With effect from 31st July, 2003, the Directors ceased to accrue defined benefit pensions with the McAlpine final salary plan since it was closed for future benefit accrual. In common with other members of that plan, the Directors continue to retain the link to pensionable salary at their eventual date of leaving in respect of service accrued up to 31st July, 2003, subject to appropriate Inland Revenue limits.
Defined Benefit Plan (1) (2) (3) (4) (5) (6) (7) Value of Transfer Transfer Gross increase Increase in Total net increase Total change value of value of in accrued accrued accrued in accrued in transfer accrued accrued pension during pension net pension at pension over value during pension at pension at Age the year of inflation 31/12/03 the year the year 31/12/03 31/12/02 nearest £ £ £ £ £ £ £
I M Grice 51 1,577 1,307 17,417 6,198 20,596 170,436 143,248 J Hume (resigned 30th October, 2003) 51 1,463 1,298 11,183 6,377 15,274 110,227 88,536 M D Swan 40 1,466 1,439 3,077 5,509 6,557 17,843 8,451 The values of accrued pension in columns (6) and (7) have been calculated in accordance with version 9.0 of guidance note GN 11 issued by the actuarial profession. The value of the net increase in column (4) represents the incremental value to the Director of his service during the year, calculated on the assumption that service terminated at the year end. It is based on the accrued pension increase in column (2) and allows for the deduction of the Director’s contribution. The change in the value of accrued pension in column (5) includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and Directors, such as stock market movements. It is calculated after deducting the Director’s contribution. Voluntary contributions paid by Directors and resulting benefits are not shown. Increases in Mr Hume’s pension are stated as at the date of his resignation as a Director. 735427 pp23-pp27 6/4/04 12:59 pm Page 27
Alfred McAlpine plc | Annual Report & Accounts 2003 Remuneration report | continued 27
Share Options The only options over ordinary shares that were held by Directors during the year were as follows:
Alfred McAlpine Savings Related Share Option Scheme 1998* and Alfred McAlpine Executive Share Option Scheme (1991)† Value Date of Exercise Exercised Lapsed Share price Date of of gain grant Price As at 01/01/03 in year in year As at 31/12/03 at exercise exercise £ I M Grice 30/07/98* 116.0p 14,870 14,870 – – 277.5p 04/12/03 24,015 27/08/03* 228.0p – – – 4,442 – – – J Hume(i) 20/04/00* 158.0p 6,131 6,131 – – 275.5p 01/07/03 7,204 27/08/03* 228.0p – – – 2,580 – – – G O Whitehead 10/05/93† 183.9p 135,968 135,968 – – 249p 08/05/03 88,515 12/04/95† 147.0p 120,000 – – 120,000 – – – * Savings-related share options are normally exercisable during the six-month period following completion of a three-year or five-year savings contract. † These options are granted for nil consideration and, subject to the Company achieving specific performance targets, are exercisable between three and ten years from the date of grant. (i) Mr Hume’s options are shown as at 1st January, 2003 and as at the date of his resignation as a Director.
The market price of an ordinary share of 25p in the Company at 31st December, 2003 was 294.25p (31st December, 2002: 241.5p) and the highest and lowest market prices during the year were 322.5p and 177.5p.
Restricted Share Plan Directors held awards over ordinary shares as follows: Initial Awards At 1st January, 2003 At 31st December, 2003
Outstanding Number Number ofValue Outstanding Initial of Awards Matching of shares Initial Awards and Deferred satisfying Shares actually Awards and Deferred Market valueNumber Exceptional Awards vesting awarded vesting Exceptional Awards Date at date of Initial Performance held criteria during during during year Performance held of award of award Awards Awards in EBT(i) the year the year £ Awards in EBT(i)
I M Grice 17/07/97 135.00p 110,000 5,731 157,300 157,300 157,300 878,520(ii) 5,731 – 29/10/97 139.00p 25,000 – 37,052 35,750 35,750 199,664(ii) – 1,302 13/05/98 167.76p 25,000 – 32,812 – – – – 32,812 12/04/99 171.05p 25,000 – 37,500 – – – – 37,500 27/04/00 188.00p 46,250 69,375 – 62,598 – – 6,777 62,598 22/03/01 280.50p 35,651 53,477 – – – – 53,477 – 23/04/02 436.10p 24,650 36,975 – – – – 36,975 – 16/05/03 245.10p 50,222 – – – – – 75,333 – 11/09/03 309.40p 23,917 – – – – – 35,875 –
J Hume(iii) 02/12/98 134.45p 35,000 – 52,500 – – – – 52,500 12/04/99 171.05p 25,000 – 37,500 – – – – 37,500 27/04/00 188.00p 46,250 69,375 – 62,598 – – 6,777 62,598 22/03/01 280.50p 34,759 52,139 – – – – 52,139 – 23/04/02 436.10p 24,077 36,116 – – – – 36,116 – 16/05/03 245.10p 48,889 – – – – – 73,333 –
D Lavelle 04/12/03 280.70p 35,000 – – – – – 52,500 –
M D Swan 23/04/02 436.10p 35,000 52,500 – – – – 52,500 – 16/05/03 245.10p 41,111 – – – – – 61,666 –
G O Whitehead 03/10/96 140.00p 50,000 – 9,165 – – – – 9,165 17/07/97 135.00p 190,000 9,899 275,101 271,700 271,700 1,517,444(ii) 9,899 3,401 29/10/97 139.00p 30,000 – 45,000 42,900 42,900 239,597(ii) – 2,100 13/05/98 167.76p 30,000 – 45,000 – – – – 45,000 12/04/99 171.05p 30,000 – 45,000 – – – – 45,000 27/04/00 188.00p 78,750 118,125 – 106,587 – – 11,538 106,587 22/03/01 280.50p 59,715 89,572 – – – – 89,572 – 23/04/02 436.10p 41,848 62,772 – – – – 62,772 – (i) Deferred Awards may be eligible for matching under the rules of the Restricted Share Plan. (ii) The date of vesting was 4th December, 2003, and the opening mid-market price of an ordinary share on that date was 279.25p. (iii) Mr Hume’s awards are shown as at 1st January, 2003 and as at the date of his resignation. This report has been approved by the Board of Directors and has been signed on behalf of the Board by GJ Forster, Group Company Secretary 22nd March, 2004 735427 pp28-pp30 6/4/04 1:03 pm Page 28
Alfred McAlpine plc | Annual Report & Accounts 2003 28 Corporate governance
Corporate governance
Compliance The Board supports and, except as noted below, ensures that the Company complies with the principles of good governance and code of best practice contained in Section 1 of the Combined Code as adopted by the UK Listing Authority and annexed to the Listing Rules (‘the Code’). Between 1st January, 2003 and March 2003, when two new independent Non-Executive Directors were appointed, the Audit Committee comprised two independent Non-Executive Directors. As previously explained, the roles of Chairman and Group Chief Executive were temporarily combined between May 2002 and August 2003. At the date of this report, Mr I M Grice’s contract as Group Chief Executive is terminable on 17 months’ notice, reducing to 12 months after 10th August, 2004.
Application The Board The Chairman is responsible for ensuring the effectiveness of the Board and proper communication with shareholders. The Group Chief Executive is responsible for implementing strategy and ensuring the effectiveness of the executive functions.
The composition and effectiveness of the Board has been reviewed in the light of the transformation and re-positioning of the Group accomplished since the end of 2001. The three Directors who joined the Board during 2003 have all undergone an induction process designed to familiarise them with the Group’s activities and to introduce them to key senior executives within each business stream. A formal evaluation of the performance of the Board and its Committees, including individual members, will be carried out during the course of 2004 and annually thereafter, and will form the basis for determining whether any further training and/or appointments might be appropriate.
Board meetings Seven regular Board meetings were held during the year, with all Directors attending each meeting. A number of matters are reserved for the Board’s formal approval, including major capital expenditure, treasury and dividend policy, overall Group strategy and all Group budgets and plans. The list of matters is reviewed annually.
Group Executive Committee The Group Chief Executive, the Group Finance Director, the Group Company Secretary, the Managing Directors of the three principal business streams, the HR Director and the Communications Director comprise a Group Executive Committee which meets 11 times a year to deal with all executive business of the Group not specifically reserved to the Board or its other committees. It is responsible for the ongoing management and monitoring of the Group’s system of internal control. Additional meetings are held to discuss specific issues.
Audit Committee The Audit Committee is formally constituted with written terms of reference which are reviewed regularly. The Committee comprises the three independent Non-Executive Directors, and is chaired by Mr P H Swatman, who is appropriately qualified and has extensive and current relevant expertise. All three members of the Committee hold recognised and relevant professional qualifications.
The Committee meets on average three times a year (four times during 2003), with the Chairman, Executive Directors, the Group’s corporate audit function and the external auditors also in attendance. Each meeting also provides the opportunity for discussions between the Non-Executive Directors and the external auditors, from which the Executive Directors are excluded. The chairman of the Committee reports to the full Board on matters discussed at each Audit Committee meeting.
The Committee oversees the work of the Group’s corporate audit function, formally reviewing the remit and scope of its plans in advance to ensure that the necessary authority and resources are available. The Committee reviews the conclusions of the corporate audit function, paying particular attention to the effectiveness of the Group’s system of internal controls (details of which are set out on pages 29 and 30). The Group’s whistle-blowing policy was reviewed and revised in January 2004.
The Committee also reviews the scope, result and cost-effectiveness of the external audit and the independence and objectivity of the external auditors. Details of non-audit services provided by PricewaterhouseCoopers to the Group during 2003 are set out in note 5 on page 41. Such work is only awarded to PricewaterhouseCoopers following careful assessment of: their expertise relative to that of other potential service providers; the value for money offered; and assurances that, individually or cumulatively with any other factors, the independence of PricewaterhouseCoopers is not at risk of compromise.
Remuneration Committee The Remuneration Committee is formally constituted with written terms of reference which are reviewed regularly. It is chaired by Mr C D Collins and comprises the Non-Executive Directors. The Committee meets on average three times a year (three times during 2003) and is responsible for determining the remuneration packages of the Executive Directors and certain key senior executives.
Nomination Committee The Nomination Committee is formally constituted with written terms of reference which are reviewed regularly. It is chaired by Mr C D Collins, and comprises the Non-Executive Directors and the Group Chief Executive. The Committee meets on an ad hoc basis and nominates candidates for appointment and re-appointment to the Board. Appointments and re-appointments are made by the full Board.
During 2003, two new Non-Executive Directors and a new Group Finance Director were appointed to the Board, and it was also decided that Mr I M Grice should become Group Chief Executive. In each of these four instances, the Committee retained the services of external consultants to shortlist candidates for interview by the Committee, which then recommended its preferred candidate to the full Board.
Routine Business Committee The Routine Business Committee is formally constituted and comprises two Directors (one of whom shall be either the Group Chief Executive or the Group Finance Director) and the Group Company Secretary. The Committee deals with routine administrative and banking matters arising between Board meetings, in addition to matters that have been approved in principle by the Board and do not warrant specific sub-committees.
Non-Executive Directors The Non-Executive Directors are appointed by the Board, on the recommendation of the Nomination Committee, for specified terms. They are subject to periodic re-election by shareholders and statutory provisions regarding removal. 735427 pp28-pp30 6/4/04 1:03 pm Page 29
Alfred McAlpine plc | Annual Report & Accounts 2003 Corporate governance | continued 29
Mr G O Whitehead assumed the role of Non-Executive Chairman on 10th August, 2003, when Mr I M Grice took over as Group Chief Executive. There are clear channels of communication between the Non-Executive Directors and the Chairman, providing opportunities for private discussion outside Board meetings.
During 2003, the number of independent Non-Executive Directors was increased from two to three, all of whom have significant external commercial experience, and bring strong independent advice and judgement to the Board. The Directors are of the opinion that, with the exception of Mr Whitehead, each of the Non-Executive Directors is independent of the Company’s management and free from any restraint that could materially interfere with the exercise of his judgement.
The re-appointment of a Non-Executive Director is a matter for consideration by the Nomination Committee and agreement by the Board. Mr C D Collins was appointed in September 2000, and, in recognition of the contribution he has made since that date, it was agreed that he should be invited to serve for a further term of three years. Mr Collins has also succeeded Mr A M Robb as the Senior Independent Non-Executive Director.
The remuneration of the Non-Executive Directors takes the form of an annual fee, which is set by the Board in line with market levels for the role undertaken. As Chairman, Mr Whitehead is the only Non-Executive Director for whom pension and other benefits are provided by the Company. Non-Executive Directors are not entitled to participate in any bonus scheme or to receive options or awards under any of the Company’s share schemes.
Re-election The Company’s Articles of Association direct that all of the Directors submit themselves for re-appointment at the first AGM after their appointment and at least every three years thereafter. Although the Articles allow the Group Chief Executive to be excluded from this requirement, the Board has determined that all Directors shall comply with the Code.
The Secretary and independent advice All Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Directors for ensuring that Board procedures are followed and applicable rules and regulations complied with.
The Directors consider that it is reasonable for any Director who wishes to seek independent legal advice to consult the Company, before advice is sought and any costs are incurred by the Group.
Relations with shareholders The Group encourages two-way communications with its institutional and private investors. Each year, the Group Chief Executive and other Executive Directors attend a number of meetings with analysts, shareholders and private client brokers. Mr Hough and Mr Swatman both attended the AGM in May 2003. The Company will endeavour to accommodate any major shareholder wishing to have a meeting with the Non-Executive Directors. Analysts’ reports are circulated to the Board, and the Chairman and the Executive Directors make a report to the Board following meetings with analysts. All queries from shareholders are dealt with in a timely manner, with Welcome Packs being sent to new shareholders.
Accountability and Audit Directors’ responsibilities The following statement, which should be read in conjunction with the report of the auditors set out on page 31, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts: “The Directors are required by UK company law to prepare accounts which give a true and fair view of the state of affairs of the Company and of the Group at the end of the financial year and of the profit or loss of the Group for the financial year then ended. The Directors are also responsible for maintaining adequate accounting records and for taking reasonable steps to safeguard the assets of the Group and detect irregularities and fraud.
The Directors confirm that in preparing the Group’s accounts appropriate policies have been consistently applied and applicable accounting standards complied with. Further, in all material respects the accounts are supported by prudent judgements and estimates made by reference to information available at the time of their preparation.”
The Directors are also responsible for the integrity and maintenance of the Group’s websites. The Group financial statements are published on the Group’s main website, and follow United Kingdom guidance as regards preparation and dissemination. The requirements in other jurisdictions may differ.
All Directors bring independent judgement to bear on their deliberations concerning strategy and performance. The Directors are satisfied that throughout the period they have had access to sufficient information to enable them to make proper decisions in a timely manner, and the Chairman has ensured that all Directors were kept properly briefed.
Going concern After reviewing current performance and detailed forecasts and taking into account available bank facilities and making further enquiries as considered appropriate, the Directors are satisfied that the Company and Group have adequate resources to enable them to continue in business for the foreseeable future. Accordingly, the accounts which appear on pages 32 to 58 have been prepared on a going concern basis.
Internal control The Group has fully complied with provision C.2.1 of the Code throughout the financial year to 31st December, 2003 and up to the date of approval of the Annual Report and Accounts. In accordance with the Guidance on Internal Control, a process has been established, and is ongoing, for identifying, evaluating and managing the significant risks faced by the Group. The Board acknowledges its responsibility for maintaining a sound system of internal control relating to operational, financial and compliance controls and risk management, in order to safeguard the shareholders’ investment and the Company’s assets, and has regularly reviewed the effectiveness thereof. Such a system, however, is designed to manage and meet the Group’s particular needs and mitigate the risks to which it is exposed, rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material mis-statement or loss.
The Group has a control environment, with policies, processes and codes of conduct that are designed to identify, manage and mitigate risk across a wide range of business activities. As new procedures and working practices are adopted, risk factors are considered and appropriate internal controls are embedded into the Group’s management systems wherever possible. 735427 pp28-pp30 6/4/04 1:03 pm Page 30
Alfred McAlpine plc | Annual Report & Accounts 2003 30 Corporate governance | continued
The key components of the Group’s system of internal control are: The Policy and Compliance Unit, which reports to the Group Chief Executive, with the objective of monitoring and improving the safety, health and environmental record of the Group. A system of self-assessment whereby each business and business unit within the Group addresses on a comprehensive basis the approach to controlling business risks. A Group-level review carried out by the Group Executive Committee to identify the major risks facing the Group and to develop and implement appropriate initiatives to manage those risks. As an integral part of the Committee’s regular meetings, assessment is made of the progress against objectives, changes to operational risk, adequacy of control and handling of any problems which arise from such reviews. The identification by the Board of a list of key risks faced both by its businesses and the Group overall. Advised by the Audit Committee, the Board has considered the extent to which the measures taken by the Group address those risks. An established management structure for the major operating businesses, with short lines of communication to the Group Chief Executive, Group Finance Director and Group Company Secretary. Delegation within the framework of the Group Policy Manual of clearly defined responsibilities and procedures, with authorisation limits set at appropriate levels for the maintenance of effective controls across the whole Group. The Corporate Audit Department, which reports regularly to the Audit Committee and the Group Finance Director on compliance with procedures, authority limits and on the effectiveness of the risk management strategies of the major businesses, such that the principal areas of business risk and exposure are identified, evaluated and mitigated. The Corporate Audit Department is also involved in overseeing a system of peer reviews involving internal audit of business units by other operational staff. A comprehensive financial reporting system of annual budgets, periodic forecasts and detailed monthly reporting, together with weekly cash reporting. Budgets and forecasts are reviewed and approved by the Board. 735427 pp31-pp32 6/4/04 1:04 pm Page 31
Alfred McAlpine plc | Annual Report & Accounts 2003 Report of the auditors 31
Report of the auditors
Independent Auditors’ Report to the Members of Alfred McAlpine plc We have audited the financial statements which comprise the Group profit and loss account, the balance sheets, the Group cash flow statement, the statement of total recognised gains and losses, the related notes which have been prepared under the historical cost convention and the accounting policies set out in the statement of accounting policies. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the remuneration report (‘the auditable part’). Respective Responsibilities of Directors and Auditors The Directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and accounting standards are set out in the statement of Directors’ responsibilities on page 29. The Directors are also responsible for preparing the Directors’ remuneration report. Our responsibility is to audit the financial statements and the auditable part of the remuneration report in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the auditable part of the remuneration report have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the report of the Directors is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and transactions is not disclosed. We read the other information contained in the Annual Report and Accounts and consider the implications for our report if we become aware of any apparent mis-statements or material inconsistencies with the financial statements. The other information comprises only the report of the Directors, the unaudited part of the remuneration report, the Chairman’s statement, the Group Chief Executive’s review, the operating and financial review, the corporate governance statement, the five-year summary and the list of principal subsidiary undertakings, joint ventures and associates. We review whether the corporate governance statement reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the Company’s or Group’s corporate governance procedures or its risk and control procedures. Basis of Audit Opinion We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the auditable part of the Directors’ remuneration report. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part of the remuneration report are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: the financial statements give a true and fair view of the state of affairs of the Company and the Group at 31st December, 2003 and the profit and cash flows of the Group for the year then ended; the financial statements have been properly prepared in accordance with the Companies Act 1985; and those parts of the remuneration report required by Part 3 of Schedule 7A to the Companies Act 1985 have been properly prepared in accordance with the Companies Act 1985.
PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors 1 Embankment Place, London WC2N 6RH 22nd March, 2004 735427 pp31-pp32 6/4/04 1:04 pm Page 32
Alfred McAlpine plc | Annual Report & Accounts 2003 32 Group profit and loss account
Group profit and loss account 2003
Year ended 31st December, 2003 2003 2003 2003
Continuing Goodwill operations amortisation Total Notes £m £m £m
Turnover Group and share of joint ventures Continuing operations 878.7 – 878.7 Acquired operations 7.4 – 7.4
886.1 – 886.1
Less: Share of joint ventures’ turnover (17.6) – (17.6)
Group turnover 1, 2 868.5 – 868.5
Group operating profit
Continuing operations 28.4 (5.2) 23.2 Acquired operations 1.3 (0.4) 0.9
29.7 (5.6) 24.1
Share of operating profit in joint ventures and associated undertakings 1 14.2 – 14.2
Total including joint ventures and associated undertakings 43.9 (5.6) 38.3
Net interest payable Group 3 1.0 – 1.0 Share of joint ventures 1 (8.7) – (8.7)
(7.7) – (7.7)
Profit on ordinary activities before taxation 5 36.2 (5.6) 30.6
Taxation on ordinary activities 6 (7.1) (0.7) (7.8)
Profit on ordinary activities after taxation 29.1 (6.3) 22.8
Dividends (including non-equity) 8 (11.3)
Transfer to reserves 22 11.5
Earnings per ordinary share Adjusted – before goodwill 9 28.6p 28.6p Basic 9 22.3p Diluted 9 21.6p Dividend per ordinary share 8 11.0p
There is no material difference between the results as shown in the profit and loss account and the results on an unmodified historical cost basis. 735427 pp33-pp34 6/4/04 1:05 pm Page 33
Alfred McAlpine plc | Annual Report & Accounts 2003 Group profit and loss account | continued 33
Group profit and loss account 2002
Year ended 31st December, 2002 2002 2002 2002 2002 2002 Total Continuing Goodwill continuing Discontinued operations amortisation operations operations Total Notes £m £m £m £m £m
Turnover Group and share of joint ventures Continuing operations 783.8 – 783.8 – 783.8
Less: Share of joint ventures’ turnover (15.5) – (15.5) – (15.5)
Group turnover 1, 2 768.3 – 768.3 – 768.3
Group operating profit 25.6 (6.2) 19.4 – 19.4
Share of operating profit in joint ventures and associated undertakings 1 10.1 – 10.1 – 10.1
Total including joint ventures and associated undertakings 35.7 (6.2) 29.5 – 29.5
Costs of termination Business termination costs 4 –––(9.2) (9.2) Utilisation of prior year provisions 4 –––6.96.9
Profit on ordinary activities before interest 35.7 (6.2) 29.5 (2.3) 27.2
Net interest payable Group 3 0.8 – 0.8 – 0.8 Share of joint ventures 1 (6.3) – (6.3) – (6.3)
(5.5) – (5.5) – (5.5)
Profit on ordinary activities before taxation 5 30.2 (6.2) 24.0 (2.3) 21.7
Taxation on ordinary activities 6 (8.0) – (8.0) 0.7 (7.3)
Profit on ordinary activities after taxation 22.2 (6.2) 16.0 (1.6) 14.4
Dividends (including non-equity) 8 (10.8)
Transfer to reserves 3.6
Earnings per ordinary share Adjusted – before goodwill and exceptional items 9 20.7p 20.7p Basic 9 13.3p Diluted 9 12.8p Dividend per ordinary share 8 10.0p 735427 pp33-pp34 6/4/04 1:05 pm Page 34
Alfred McAlpine plc | Annual Report & Accounts 2003 34 Group balance sheet
Group balance sheet
at 31st December, 2003 2003 2003 2002 2002 Notes £m £m £m £m
Fixed assets Intangible assets Goodwill 10 143.9 132.5 Negative goodwill 10 – (2.2)
143.9 130.3 Tangible assets 11 52.9 45.8 Investments in joint ventures: 15 Share of gross assets 250.8 128.4 Share of gross liabilities (239.5) (118.7)
14 11.3 9.7 Loans to joint ventures 14 5.0 3.7
16.3 13.4 Investments in associates 14 3.2 3.8
216.3 193.3
Current assets Stocks 16 24.2 22.8 Debtors: due within one year 17 227.2 187.7 Debtors: due after one year 17 41.6 42.3 Cash at bank and in hand 23, 25 72.5 122.6
365.5 375.4 Creditors: amounts falling due within one year Borrowings 18 (7.7) (1.9) Other creditors 18 (236.6) (231.0)
(244.3) (232.9)
Net current assets 121.2 142.5
Total assets less current liabilities 337.5 335.8 Creditors: amounts falling due after more than one year Borrowings 18 (2.8) (6.6) Other creditors 18 (7.9) (6.8)
(10.7) (13.4) Provisions for liabilities and charges 19 (11.1) (13.1)
(21.8) (26.5)
Net assets 315.7 309.3
Capital and reserves Called up share capital 20 30.1 30.3 Share premium 22 140.5 138.0 Revaluation reserve 22 0.6 0.6 Other reserves 22 7.6 6.8 Profit and loss account 22 136.9 133.6
Shareholders’ funds (including £4.5m relating to non equity interests) 315.7 309.3
The notes on pages 39 to 58 form part of these accounts. These accounts were approved by the Board on 22nd March, 2004
I M Grice D Lavelle Group Chief Executive Group Finance Director 735427 pp35-pp37 6/4/04 1:07 pm Page 35
Alfred McAlpine plc | Annual Report & Accounts 2003 Statement of total recognised gains and losses 35
Statement of total recognised gains and losses
for the year ended 31st December, 2003 2003 2002 Notes £m £m
Profit for the financial year 22.8 14.4 Movement in translation of foreign currency investments 22 (0.7) (0.1)
Total recognised gains relating to the year 22.1 14.3
Reconciliation of movements in shareholders’ funds
for the year ended 31st December, 2003 2003 2002 Notes £m £m
Profit for the financial year 22.8 14.4 Dividends 8 (11.3) (10.8)
11.5 3.6
Shares issued 20 5.2 12.8 Shares cancelled 20 (9.6) (23.4) Movement in translation of foreign currency investments 22 (0.7) (0.1)
Net increase/(decrease) in shareholders’ funds 6.4 (7.1) Opening shareholders’ funds 309.3 316.4
Closing shareholders’ funds 315.7 309.3
The notes on pages 39 to 58 form part of these accounts. 735427 pp35-pp37 6/4/04 1:07 pm Page 36
Alfred McAlpine plc | Annual Report & Accounts 2003 36 Group cash flow statement
Group cash flow statement
for the year ended 31st December, 2003 2003 2003 2002 2002 Notes £m £m £m £m
Operating activities Net cash (outflow)/inflow from operating activities 24 (1.5) 26.6 Building division termination costs paid (1.9) (16.8)
(3.4) 9.8
Dividends received from joint ventures and associates 1.1 0.8 Returns on investments and servicing of finance Interest received 2.4 2.9 Interest paid (1.1) (1.8) Interest element of finance lease payments (0.3) (0.3) Non-equity dividends (0.4) (0.4)
0.6 0.4 Taxation paid (9.0) (6.8) Capital expenditure and financial investment Purchase of tangible fixed assets (16.2) (11.8) Sale of tangible fixed assets 5.9 1.8
(10.3) (10.0) Acquisitions and disposals Cash consideration paid for subsidiary undertakings (7.7) (84.6) Net overdrafts acquired with subsidiary undertakings (0.1) (1.3) (Costs paid)/net proceeds on disposal of subsidiary undertakings (0.9) 260.2 Net cash received from/(invested in) joint ventures and associates 0.6 (3.3)
(8.1) 171.0 Equity dividends paid (10.4) (10.6)
Cash (outflow)/inflow before management of liquid resources and financing (39.5) 154.6 Management of liquid resources Decrease/(increase) in short-term bank deposits 48.1 (68.8) Financing Issue of ordinary shares 1.9 0.5 Purchase of ordinary shares (9.6) (23.4) Capital element of finance lease payments (1.2) (2.0) Repayment of debt acquired (5.9) (6.4) Decrease in debt (0.7) (48.5)
(15.5) (79.8)
(Decrease)/increase in cash in the year 25 (6.9) 6.0
Reconciliation of net cash flow to movement in net cash (Decrease)/increase in cash in the year (6.9) 6.0 Borrowings net of overdrafts acquired with subsidiary undertakings (5.9) (6.4) Decrease in debt 9.0 55.0 (Decrease)/increase in liquid resources (48.1) 68.8 (Increase)/decrease in finance leases (0.9) 1.2 Decrease/(increase) in loan notes 0.7 (1.0)
(Decrease)/increase in net cash in the year (52.1) 123.6
Opening net cash/(debt) at 1st January 25 114.1 (9.5)
Closing net cash at 31st December 25 62.0 114.1
The notes on pages 39 to 58 form part of these accounts. 735427 pp35-pp37 6/4/04 1:07 pm Page 37
Alfred McAlpine plc | Annual Report & Accounts 2003 Company balance sheet 37
Company balance sheet
at 31st December, 2003 2003 2003 2002 2002 Notes £m £m £m £m
Fixed assets Tangible assets 11 7.4 2.5 Investments 14 407.9 397.8
415.3 400.3
Current assets Debtors: due within one year 17 202.0 230.2 Debtors: due after one year 17 32.3 32.3 Cash at bank and in hand – –
234.3 262.5 Creditors: amounts falling due within one year Borrowings 18 (2.7) (0.7) Other creditors 18 (262.8) (271.0)
(265.5) (271.7)
Net current liabilities (31.2) (9.2)
Total assets less current liabilities 384.1 391.1 Creditors: amounts falling due after more than one year Borrowings 18 – (1.0) Other creditors 18 – –
– (1.0) Provisions for liabilities and charges 19 (6.4) (6.8)
(6.4) (7.8)
Net assets 377.7 383.3
Capital and reserves Called up share capital 20 30.1 30.3 Share premium 22 140.5 138.0 Other reserves 22 156.9 156.0 Profit and loss account 22 50.2 59.0
Shareholders’ funds (including £4.5m relating to non equity interests) 27 377.7 383.3
The notes on pages 39 to 58 form part of these accounts. These accounts were approved by the Board on 22nd March, 2004.
I M Grice D Lavelle Group Chief Executive Group Finance Director 735427 pp38-pp43 6/4/04 1:08 pm Page 38
Alfred McAlpine plc | Annual Report & Accounts 2003 38 Accounting policies
Accounting policies
Basis of Accounting and Consolidation The Group accounts are prepared on the historical cost basis except for the revaluation of certain tangible fixed assets and include the financial statements of the Company and all of its subsidiary undertakings made up to 31st December, together with the Group’s share of the results up to 31st December of: i) Joint ventures A joint venture is an entity in which the Group holds a long-term interest and which is jointly controlled by the Group and one or more other venturers under a contractual arrangement. The results of joint ventures are accounted for using the gross equity method of accounting. ii) Associates An associate is an entity in which the Group holds a long-term interest and over whose operating and financial policies the Group exercises a significant influence. The results of associates are accounted for using the equity method of accounting in accordance with FRS 9. iii) Joint arrangements that are not entities The Group has certain contractual arrangements with other participants to engage in joint activities that do not create an entity carrying on a trade or business of its own. The Group includes its share of assets, liabilities and cash flows in such joint arrangements, measured in accordance with the terms of each arrangement, which is usually pro-rata to the Group’s interest in the risks in the joint arrangement. Any subsidiary undertakings, joint ventures, associates and joint arrangements that are not entities sold or acquired during the year are included up to, or from, the dates of change of control. Turnover and Profit Recognition Turnover comprises the value of work performed, goods sold and services provided outside the Group excluding Value Added Tax. Amounts in respect of contracts included in turnover, net of payments received on account, are shown in debtors as amounts recoverable on contracts. Cash received in excess of the value of work done is shown in creditors as payments on account. An appropriate proportion of the anticipated contract profit is recognised in the profit and loss account. Provision is made for anticipated contract losses. Pre-contract costs incurred before it is virtually certain that a contract will be awarded are charged to the profit and loss account. Once virtually certain of contract award, costs are held as amounts recoverable on contracts and form part of the accounting for the contract as a whole. Turnover in respect of land sales is recognised on the exchange of unconditional contracts. Depreciation Depreciation, based on estimated useful lives, is charged on a straight line basis as follows: freehold properties – 2% per annum; leasehold properties – over the lease term; plant and equipment – at rates between 10% and 33% per annum. Slate reserves (minerals) are depreciated by reference to production, where the quarry life is less than ten years. Stocks Stock and work in progress, including land held for and in the course of development, is valued at the lower of cost and net realisable value. Cost includes, where appropriate, labour and production overheads. Deferred Taxation Full provision is made at anticipated rates for taxation deferred as a result of the pensions prepayment, accelerated capital allowances and other timing differences. No provision is made for UK or overseas taxation that might become payable on the remittance of profits from overseas. Rates of Exchange Profit and loss accounts of overseas subsidiaries are translated into sterling at average rates of exchange for the year. Assets and liabilities are translated into sterling at the closing rate of exchange. The difference arising from the re-translation at the closing rate of the opening net assets and the retained profits and losses for the current year, is taken to reserves. Financial Instruments Foreign currency assets and liabilities covered by forward contracts are translated at the contract rates of exchange. Other assets and liabilities in foreign currencies are translated at closing rates. Pensions The Group operates six main defined contribution pension schemes. The contributions paid by the Group and the employees are invested within the individual pension funds in the month following the month of deduction. The employer contribution rates are determined by reference to an age, service or grade related scale or are at a fixed, level percentage. The amount contributed by the Group is charged to the profit and loss account as the contributions fall due. The Group also operates a defined benefit pension scheme, which is closed to future service accrual, and participates in the Electricity Supply Pension Scheme (ESPS). Both of these schemes are administered by trustees, the funds being independent of the Group’s finances and not included in the Group accounts. Each scheme is valued by an independent actuary at least every three years, and funded by contributions from the Company at rates determined on the advice of the actuary. Contributions to the schemes are charged to the profit and loss account so as to spread the cost of pensions over employees’ service lives within the Group. Employees also contribute to the ESPS. Leases and Hire Purchase Contracts Rentals under operating leases are charged to the profit and loss account on a straight line basis over the lease term. Assets held under finance leases and hire purchase contracts are included in fixed assets and capital elements of the commitments are shown as obligations under finance leases and hire purchase contracts. Payments are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease terms and their useful lives. Operating lease income is credited to the profit and loss account as it is earned. Purchased Goodwill Goodwill represents the excess of the fair value of the purchase consideration for shares in subsidiary undertakings, joint ventures and associates over the fair value to the Group of the net assets acquired. i) To 31st December, 1997: Goodwill was written off to reserves in the year of acquisition. The profit or loss on the disposal of a business acquired before 31st December, 1997 takes into account the attributable value of purchased goodwill relating to that business. ii) From 1st January, 1998: Goodwill has been recognised within fixed assets in the year in which it arises and amortised on a straight line basis over its useful economic life. Negative goodwill represents the excess of the fair value to the Group of net assets acquired over the fair value of purchase consideration and is amortised over the periods in which the underlying assets to which it relates are recovered. 735427 pp38-pp43 6/4/04 1:08 pm Page 39
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts 39
Notes to the accounts
1. Segmental Analysis Turnover 2003 2002 £m £m
Continuing operations McAlpine Business Services(i) 210.6 126.0 McAlpine Capital Projects 329.9 363.8 McAlpine Infrastructure Services 304.3 255.8 Centre and other businesses 23.7 22.7
Group 868.5 768.3
2003 2002 Profit £m £m
Continuing operations McAlpine Business Services(i) 12.8 8.1 McAlpine Capital Projects 14.0 17.0 McAlpine Infrastructure Services 12.9 11.4 Centre and other businesses (10.0) (10.9)
Group 29.7 25.6
Net interest 1.0 0.8
30.7 26.4
McAlpine Project Investments (joint ventures) Share of operating profit 12.7 9.6 Share of interest payable (8.7) (6.3)
4.0 3.3
McAlpine Infrastructure Services (associates) 1.5 0.5
Profit before goodwill and tax 36.2 30.2
Goodwill amortisation McAlpine Business Services (1.7) (2.9) McAlpine Infrastructure Services (3.9) (3.3)
Discontinued operations Business termination costs – (2.3)
Profit before tax 30.6 21.7 (i) McAlpine Business Services includes turnover of £7.4m and operating profit before goodwill amortisation of £1.3m in respect of operations acquired during the year. Operating profit after goodwill amortisation is £0.9m. 735427 pp38-pp43 6/4/04 1:08 pm Page 40
Alfred McAlpine plc | Annual Report & Accounts 2003 40 Notes to the accounts | continued
1. Segmental Analysis continued Net operating assets 2003 2002 £m £m
Continuing operations McAlpine Business Services 40.5 25.4 McAlpine Capital Projects (14.4) (42.0) McAlpine Infrastructure Services 25.0 18.8 Centre and other businesses 76.3 81.8
127.4 84.0
Goodwill McAlpine Business Services 80.8 64.3 McAlpine Infrastructure Services 63.1 66.0
271.3 214.3 Net operating assets exclude provisions for liabilities and charges of £11.1m (2002: £13.1m), net cash of £62.0m (2002: £114.1m) and dividends payable of £6.5m (2002: £6.1m) which have not been allocated to operations.
2003 2002 Group turnover analysed by geographical area of origin (which does not differ materially from destination): £m £m
UK 859.3 755.2 Rest of the World 9.2 13.1
868.5 768.3
2. Statutory Information 2003 2003 2003 2002 Continuing Acquisitions Total Total £m £m £m £m Turnover 861.1 7.4 868.5 768.3 Cost of sales (758.6) (3.4) (762.0) (675.4)
Gross profit 102.5 4.0 106.5 92.9 Distribution costs (0.1) – (0.1) (0.2) Administrative expenses (including goodwill) (79.2) (3.1) (82.3) (73.3)
Group operating profit after goodwill 23.2 0.9 24.1 19.4
Group operating profit before goodwill 28.4 1.3 29.7 25.6 Group operating profit is stated before the share of operating profit in joint ventures and associates and after the amortisation of goodwill of £5.6m (2002: £6.2m). 735427 pp38-pp43 6/4/04 1:08 pm Page 41
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 41
3. Group Interest 2003 2002 £m £m
Interest payable on bank loans and overdrafts (0.9) (0.3) Finance charges payable under finance leases and hire purchase contracts (0.3) (0.3) Other interest payable (0.1) (1.4) Unwinding of discount on provisions (0.1) (0.1)
Interest payable (1.4) (2.1) Interest receivable 2.4 2.9
1.0 0.8
4. Exceptional Item 2003 2002 £m £m
Building division termination costs: Cost of resolving old contract dispute – (18.2) Less: Amounts provided – 6.9 Amounts previously contributed by insurers – 7.6 Other amounts accrued – 1.4
Exceptional charge – (2.3) On 21st January, 2003 the Group reached a settlement of an old disputed contract which had been entered into by the former open tender building business in 1989. The financial effect of this settlement was reflected in the 2002 financial statements. Amounts previously contributed by insurers and other amounts accrued in respect of other costs were held within Centre.
5. Profit on Ordinary Activities Before Taxation 2003 2002 is stated after charging/(crediting): £m £m
Staff costs (see note 7) 220.4 178.1 Depreciation of tangible fixed assets own assets 7.9 6.5 assets held under finance leases and hire purchase obligations 0.5 0.6 Amortisation of goodwill 5.6 6.2 Hire of plant and machinery 29.5 39.1 Rentals under operating leases plant and machinery 7.6 9.1 other 4.9 5.5 Auditors’ remuneration – audit fees(i) 0.5 0.4 Profit on disposal of fixed assets (2.6) (0.5) Operating lease income (29.5) (22.9) (i) Included in the auditors’ remuneration figure above are fees incurred by Alfred McAlpine plc of £0.1m (2002: £0.1m) relating to the audit of the Company. Fees payable to PricewaterhouseCoopers LLP for non-audit services in 2003 were £0.8m (2002: £0.7m), including £0.3m in respect of due diligence and corporate finance work carried out in connection with the acquisition of AIMS Group Services Limited and fees of £0.5m for taxation advice and compliance work. 735427 pp38-pp43 6/4/04 1:08 pm Page 42
Alfred McAlpine plc | Annual Report & Accounts 2003 42 Notes to the accounts | continued
6. Taxation on Ordinary Activities Analysis of charge in the year 2003 2002 £m £m
UK taxation Corporate tax at 30% (2002: 30%) 9.4 6.7 Double tax relief (0.4) (0.1) Adjustment in respect of prior periods (3.4) 0.4 Share of joint ventures’ and associates’ tax 1.4 1.0
7.0 8.0 Overseas Corporate tax 1.0 0.6
Total current tax 8.0 8.6
Deferred tax Charge for the year (0.3) (0.8) Adjustment in respect of prior periods 0.1 (0.5)
Total deferred tax (0.2) (1.3)
Taxation charge for the year 7.8 7.3
The current tax charge for the year is lower (2002: higher) than the standard rate of corporation tax in the UK (30%). The differences are explained below:
2003 2002 £m £m
Profit on ordinary activities before tax 30.6 21.7 Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2002: 30%) 9.2 6.5
Effects of: Amortisation of goodwill from continuing operations 2.3 1.8 Expenses not deductible for tax purposes (0.4) 0.7 Accelerated capital allowances and other timing differences 0.6 (0.9) Adjustments to tax in respect of prior periods (3.4) 0.4 Higher rates of tax on overseas activities and DTR – 0.1 Utilisation of prior year losses (0.3) –
Current tax charge for the year 8.0 8.6
The Group has an unrecognised deferred tax asset of £1.7m (2002: £1.7m) in respect of ACT recoverable which may affect future tax charges. 735427 pp38-pp43 6/4/04 1:08 pm Page 43
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 43
7. Employees and Directors 2003 2002 a) Employee costs during the year, including Directors: £m £m
Wages and salaries 192.6 157.6 Social security costs 19.5 15.2 Other pension costs (see note 29) 8.3 5.3
220.4 178.1
2003 2002 b) Average number employed during the year, including Directors: Number Number
Production 4,948 4,476 Sales and distribution 18 18 Administration and services 2,828 1,982
7,794 6,476 c) Directors’ emoluments An analysis of individual Directors’ emoluments and pension entitlements (including those of the highest paid Director) and their interests in the share capital of the Company is contained in the remuneration report on pages 23 to 27.
8. Dividends 2003 2002 £m £m
Ordinary shares Interim of 4.5p (2002: 4.1p) paid on 31st October, 2003 4.4 4.5 Final of 6.5p (2002: 5.9p) payable on 28th May, 2004 6.5 5.9
10.9 10.4 Preference shares 0.4 0.4
11.3 10.8 The Trustee of the Alfred McAlpine Employee Benefit Trust has waived its right to receive any dividends (except for 0.001p per share) in respect of shares held in the Trust.
9. Earnings Per Share 2003 2002 £m £m
Profit after tax 22.8 14.4 Preference dividend (0.4) (0.4)
Basic earnings 22.4 14.0 Goodwill 6.3 6.2 Exceptional loss before tax – 2.3 Taxation credit on exceptional loss – (0.7)
Adjusted earnings 28.7 21.8 Adjusted earnings per share of 28.6p (2002: 20.7p) is calculated by dividing the earnings excluding exceptional items and goodwill amortisation of £28.7m by the weighted average number of ordinary shares in issue during the year of 100,274,258 (2002: 105,517,769).
Basic earnings per share of 22.3p (2002: 13.3p) is calculated by dividing the earnings of £22.4m attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year of 100,274,258 (2002: 105,517,769).
Diluted earnings per share of 21.6p (2002: 12.8p) is calculated by dividing the earnings of £22.4m attributable to ordinary shareholders by the weighted average number of shares in issue increased to assume conversion of all dilutive potential ordinary shares totalling 3,227,483 (2002: 3,900,863). 735427 pp44-pp47 6/4/04 1:08 pm Page 44
Alfred McAlpine plc | Annual Report & Accounts 2003 44 Notes to the accounts | continued
10. Intangible Fixed Assets Negative Goodwill goodwill Total Group £m £m £m
Cost At 1st January, 2003 141.6 (2.2) 139.4 Additions during the year (see note 26) 13.6 – 13.6 Revisions (see note 26) 5.6 – 5.6
At 31st December, 2003 160.8 (2.2) 158.6
Amortisation At 1st January, 2003 9.1 – 9.1 Charge/(credit) for the year 7.8 (2.2) 5.6
At 31st December, 2003 16.9 (2.2) 14.7
Net book amount at 31st December, 2002 132.5 (2.2) 130.3
Net book amount at 31st December, 2003 143.9 – 143.9
11. Tangible Fixed Assets Plant and Land and equipment buildings Minerals Total Group £m £m £m £m
Cost or valuation As at 1st January, 2003 52.9 20.9 9.9 83.7 Additions 15.2 0.8 2.4 18.4 Acquisitions 0.4 0.1 – 0.5 Disposals (11.7) (1.0) – (12.7)
At 31st December, 2003 56.8 20.8 12.3 89.9
Depreciation As at 1st January, 2003 32.2 3.8 1.9 37.9 Provided in the year 6.9 0.7 0.8 8.4 Disposals (9.2) (0.1) – (9.3)
At 31st December, 2003 29.9 4.4 2.7 37.0
Net book value at 31st December, 2002 20.7 17.1 8.0 45.8
Net book value at 31st December, 2003 26.9 16.4 9.6 52.9
Land and buildings Minerals £m £m
The net book value comprises: Freehold 8.4 8.7 Long leasehold 7.3 – Short leasehold 0.7 0.9
16.4 9.6 The gross book value of land and buildings represents £18.5m (2002: £19.1m) at cost and £2.3m (2002: £1.8m) at 1993 valuation. The transitional provisions of FRS 15 were followed, whereby this valuation does not need to be updated. The historic cost of land and buildings amounted to £20.3m (2002: £20.3m) and accumulated depreciation based thereon would be £4.3m (2002: £3.7m). 735427 pp44-pp47 6/4/04 1:08 pm Page 45
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 45
11. Tangible Fixed Assets continued Included in the amounts for plant and equipment above are the following amounts relating to leased assets and assets acquired under hire purchase contracts.
2003 2002 £m £m
Cost 7.3 6.0 Accumulated depreciation (3.5) (3.4)
3.8 2.6
Land and Plant and buildings equipment Total Company £m £m £m
Cost At 1st January, 2003 2.0 0.9 2.9 Additions – 4.0 4.0 Transfers – 1.9 1.9 Disposals – (0.2) (0.2)
At 31st December, 2003 2.0 6.6 8.6
Accumulated depreciation At 1st January, 2003 0.1 0.3 0.4 Provided during the year 0.1 0.6 0.7 Transfers – 0.3 0.3 Disposals – (0.2) (0.2)
At 31st December, 2003 0.2 1.0 1.2
Net book value at 31st December, 2002 1.9 0.6 2.5
Net book value at 31st December, 2003 1.8 5.6 7.4
Land and buildings £m
The net book value comprises: Freehold 0.5 Long leasehold 1.3
1.8
12. Operating Lease Commitments Land and Land and buildings Other buildings Other The minimum annual commitments at 31st December, 2003 2003 2003 2002 2002 under non-cancellable operating leases are as follows: £m £m £m £m
Leases which expire: Within one year 0.5 9.1 0.4 4.3 Within two and five years 2.3 18.0 2.5 5.8 Over five years 3.1 0.4 2.8 0.1
5.9 27.5 5.7 10.2
13. Capital Commitments 2003 2002 £m £m
Contracted for but not provided – 1.0 735427 pp44-pp47 6/4/04 1:08 pm Page 46
Alfred McAlpine plc | Annual Report & Accounts 2003 46 Notes to the accounts | continued
14. Fixed Asset – Investments Group Group Company Company 2003 2002 2003 2002 £m £m £m £m
Shares in Group undertakings At 1st January – – 392.2 304.4 Additions – – 8.9 87.8 Revaluations – – – 9.5 Disposals – – – (9.5)
At 31st December – – 401.1 392.2
Interests in joint ventures Share of net assets at 1st January 9.7 9.2 6.3 – Share of retained profits 2.2 2.2 – – Distributions (0.8) (0.8) – – Additions 0.2 – 0.1 – Transfers – (0.9) – 6.3
Share of net assets at 31st December 11.3 9.7 6.4 6.3
Loans to joint ventures 5.0 3.7 0.4 (0.7)
16.3 13.4 6.8 5.6
Interests in associated undertakings Share of net assets at 1st January 3.8 – – – Share of retained profits 0.9 0.3 – – Distributions (0.3) – – – Additions 0.5 1.8 – – Disposals (1.7) – – – Acquisitions – 0.8 – – Transfers – 0.9 – –
Share of net assets at 31st December 3.2 3.8 – –
Total fixed asset investments 19.5 17.2 407.9 397.8 The principal subsidiary and joint venture undertakings, all of which are included in the consolidated accounts, are set out on page 59. For the Company the interest in joint ventures is held at cost.
15. Joint Ventures The Group has investments in joint ventures established to provide long-term services to Government agencies as part of the Private Finance Initiative (PFI). The Group’s notional share of the net assets of all joint ventures is noted below: 2003 2002 Notional share of joint venture balance sheets £m £m
Fixed assets 159.7 75.9 Finance receivables 39.5 40.4 Current assets 51.6 12.1 Liabilities due within one year (15.7) (6.7) Liabilities due after one year (223.8) (112.0)
Net assets 11.3 9.7 Net loans to joint ventures 5.0 3.7
Total investment in joint ventures 16.3 13.4 The liabilities of the joint venture investments have no recourse to the Group. 735427 pp44-pp47 6/4/04 1:08 pm Page 47
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 47
15. Joint Ventures continued Included in the above is the Group’s share of Road Management Group Limited (RMG) the details of which are separately disclosed below: Road Management Group 2003 2002 Group’s share of profit and loss account £m £m
Turnover 10.8 10.2
Operating profit 8.3 8.7 Interest (6.3) (6.4)
Profit before tax 2.0 2.3 Tax (0.6) (0.6)
Profit after tax 1.4 1.7
Group’s notional share of balance sheet
Fixed assets 151.9 75.9 Current assets 48.1 7.9 Liabilities due within one year (14.0) (5.1) Liabilities due after one year (175.5) (68.8)
Net assets 10.5 9.9 The Group has a commitment to invest £9.5m relating to its 25% interest in RMG, including £4.5m in relation to the A13 upgrade in East London and £4.7m in relation to the A1 upgrade to motorway standard between Darrington and Dishforth in North Yorkshire. There is also a commitment to invest £0.7m in other schemes.
All joint venture borrowings are without recourse to the Group.
16. Stocks 2003 2002 £m £m
Group Raw materials 8.0 7.1 Plant spares and consumable stores 1.1 1.9 Finished goods and goods for resale 6.1 6.0 Work in progress 3.4 1.4 Other stocks 5.6 6.4
24.2 22.8 735427 pp48-pp51 6/4/04 1:10 pm Page 48
Alfred McAlpine plc | Annual Report & Accounts 2003 48 Notes to the accounts | continued
17. Debtors Group Group Company Company 2003 2002 2003 2002 £m £m £m £m
Amounts falling due within one year Trade debtors 64.9 59.3 0.2 0.3 Amounts owed by subsidiary undertakings – – 197.2 220.8 Prepayments and accrued income 33.1 25.9 0.3 0.3 Amounts recoverable on contracts 111.7 82.0 – – Investment in own shares 0.6 0.5 0.6 0.5 Other debtors 16.9 20.0 3.7 8.3
227.2 187.7 202.0 230.2
Amounts falling due after more than one year Pension prepayment (see note 29) 32.3 32.3 32.3 32.3 Amounts recoverable on contracts 4.8 5.2 – – Other debtors 4.5 4.8 – –
41.6 42.3 32.3 32.3 Investment in own shares as at 31st December, 2003 represents 2,450,340 ordinary shares, with a nominal value of £612,585, held by the Trustee of the Alfred McAlpine Employee Benefit Trust and financed by the Company.
18. Creditors Group Group Company Company 2003 2002 2003 2002 £m £m £m £m
Amounts falling due within one year: Borrowings Loan notes 0.3 – 0.3 – Overdrafts 5.6 0.7 2.4 0.7 Finance leases and hire purchase contracts 1.8 1.2 – –
7.7 1.9 2.7 0.7
Other Payments received on account 17.1 23.9 – – Trade creditors 103.6 88.7 1.3 1.7 Amounts owed to subsidiary undertakings – – 250.8 256.0 Accruals and deferred income 56.3 73.7 1.9 3.6 Taxation and social security 19.8 21.2 1.4 2.6 Other creditors 33.3 17.4 0.9 1.0 Proposed dividends 6.5 6.1 6.5 6.1
236.6 231.0 262.8 271.0
Amounts falling due after more than one year: Borrowings Bank loans – 3.1 – – Loan notes – 1.0 – 1.0 Finance leases and hire purchase contracts 2.8 2.5 – –
2.8 6.6 – 1.0
Other Shortfall on pension schemes acquired 6.5 6.5 – – Other creditors 1.4 0.3 – –
7.9 6.8 – – At 31st December, 2003 there were no bank loans outstanding under the committed revolving credit facilities which expire in November 2007. All bank borrowings are unsecured. 735427 pp48-pp51 6/4/04 1:10 pm Page 49
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 49
19. Provisions for Liabilities and Charges Group Group Group discontinued Group Company deferred property business total deferred taxation provisions provisions provisions taxation £m £m £m £m £m
At 1st January, 2003 9.6 1.6 1.9 13.1 6.8 Release for the year (0.2) (0.2) – (0.4) (0.4) Unwinding of discount – 0.1 – 0.1 – Amounts utilised – (0.5) (0.3) (0.8) – Transfer to corporation tax creditor (0.9) – – (0.9) –
At 31st December, 2003 8.5 1.0 1.6 11.1 6.4
a) Group deferred taxation Provided Provided 2003 2002 £m £m
Net pension prepayment 7.7 7.7 Accelerated capital allowances (5.3) (3.5) Short-term timing differences 6.1 5.4
8.5 9.6 At 31st December, 2003 there was an unrecognised deferred tax asset of £1.7m (2002: £1.7m) in respect of ACT recoverable. There would be no unprovided tax liability (2002: £nil) if the Group’s fixed assets were sold at their revalued amounts.
b) Group property provisions These relate to onerous property leases which were either acquired with Raine PLC in June 1997 or became surplus as a result of the closure of the old building division. The maximum outstanding period for any of these leases is ten years and the provision is based upon the discounted committed head lease expenditure offset by committed and estimated sub-lease income.
c) Group discontinued business provisions These represent the estimated costs remaining from the Group’s withdrawal from discontinued operations. The amount provided represents the best estimate of both obligations under completed contracts and other estimated costs. 735427 pp48-pp51 6/4/04 1:10 pm Page 50
Alfred McAlpine plc | Annual Report & Accounts 2003 50 Notes to the accounts | continued
20. Share Capital 2003 2002 2003 2002 No. 000 No. 000 £m £m
Authorised Ordinary shares of 25p each 181,973 181,973 45.5 45.5 9% cumulative preference shares of £1 each 4,507 4,507 4.5 4.5
50.0 50.0
2003 2002 2003 2002 No. 000 No. 000 £m £m
Allotted and fully paid Ordinary shares at beginning of year 103,226 107,311 25.8 26.8 Issued during the year 2,884 3,170 0.7 0.8 Cancelled during the year (3,555) (7,255) (0.9) (1.8)
Ordinary shares at end of year 102,555 103,226 25.6 25.8
9% cumulative preference shares of £1 each 4,507 4,507 4.5 4.5
30.1 30.3
The preference shares, which represent the only non-equity interest in shareholders’ funds, have the following rights: a) a fixed cumulative preference dividend of 9% per annum payable half yearly on 30th April and 31st October; b) they rank with regard to dividend (including any arrears to the commencement of a winding up) and return on capital in priority to ordinary shares. On a return of assets on liquidation or reduction in capital, there is a premium entitlement (calculated in accordance with the terms and conditions of the Articles of Association) but no further right to participate in the profits or assets; c) there is no redemption entitlement; and d) where any preference dividend is in arrears, holders are entitled to attend any general meeting, with the right to vote on a show of hands or by poll, with one vote for each share held.
Consideration received for the 2,884,066 ordinary shares issued during the year was £3,176,092, comprising: £1,265,773 being the fair value of shares issued in connection with the acquisition of AIMS Group Services Limited; £1,592,849 received upon the exercise of share options; and £317,470 subscription monies received from the Trustee of the Alfred McAlpine Employee Benefit Trust.
21. Committed But Unissued Share Capital Options over the Company’s ordinary shares outstanding at 31st December, 2003 were as follows: Alfred McAlpine Executive Share Option Scheme (1991) (‘ESOS 1991’)* Alfred McAlpine Executive Share Option Scheme (2000) (‘ESOS 2000’)#
Date of Grant 12/04/95* 29/10/97* 13/05/98* 18/04/00* 22/03/01# 23/04/02# 03/09/03# Price 147.0p 134.5p 158.5p 178.0p 280.5p 436.1p 304.5p Total
Directors 120,000––––– –120,000 Employees 10,000 32,000 43,560 205,000 73,071 294,000 310,000 967,631
Total as at 31/12/02 130,000 32,000 43,560 205,000 73,071 294,000 310,000 1,087,631 Ordinarily, options granted under the terms of the ESOS 1991 and the ESOS 2000 are exercisable between three and ten years from the date of grant, subject to the Company achieving specific performance targets.
1998 Savings Related Share Option Scheme
Date of Grant 30/07/98 20/04/00 27/08/03 Price 116.0p 158.0p 228.0p
Exercisable from Number Number Number
01/07/03 – 12,873 – 01/10/03 57,693 – – 01/07/05 –200,554 – 01/11/06 ––1,344,804 01/11/08 ––1,456,320
57,693 213,427 2,801,124 Savings-related share options are normally exercisable during the six-month period following completion of either a three-year or five-year savings contract. 735427 pp48-pp51 6/4/04 1:10 pm Page 51
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 51
21. Committed But Unissued Share Capital continued Restricted Share Plan
Date of Award 03/10/96 17/07/97 29/10/97 13/05/98 02/12/98 12/04/99 27/04/00 22/03/01 23/04/02 16/05/03 11/09/03 04/12/03 Value of each award at 31/12/03 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p 294.25p Total
Directors† 9,165 3,401 3,402 77,812 – 82,500 169,185 95,366 101,498 91,333 23,917 35,000 692,579 Employees 5,498 – 2,357 47,937 52,500 164,250 229,615 319,686 333,480 750,254 10,019 – 1,915,596
14,663 3,401 5,759 125,749 52,500 246,750 398,800 415,052 434,978 841,587 33,936 35,000 2,608,175 Awards made under the Restricted Share Plan normally vest between three and seven years from the date of initial award, subject to the Company achieving specific performance targets. Participants may elect to defer vesting for a further period of three years, during which the awards are held in the Employee Benefit Trust and may become eligible for matching under the rules of the Plan.
On the occasion of the sale of the Homes business, the Remuneration Committee exercised its discretion by subjecting all outstanding awards to a performance test as at 1st October, 2001. With the exception of the awards made on 17th July and 29th October, 1997 (which achieved vesting at 144.79%), the Company’s performance was measured as achieving 150% maximum vesting at 1st October, 2001. Shares representing the proportion of each award deemed to have tested successfully (calculated by reference to the proportion of the initial three-year test period that had elapsed at 1st October, 2001) are held by the Trustee of the Employee Benefit Trust until such time as the award would normally vest, subject to the participant continuing to be employed by the Group.
1. As at 27th April, 2003, the Company’s performance over the three-year period from the date of award ranked fourth in its comparator group, and the proportion of the awards made on 27th April, 2000 that remained to be tested was therefore capable of vesting to 122%. Participants elected to defer vesting of 422,316 shares. 2. The growth in the Company’s earnings per share (after adjustment to reflect the disposal of the Homes business) over the three-year deferral period ending on 17th July, 2003 exceeded the Retail Price Index by more than the requisite 9%. 511,940 shares, together with the corresponding matching shares, were released to participants on 4th December, 2003. 3. The growth in the Company’s earnings per share (after adjustment to reflect the disposal of the Homes business) over the three-year deferral period ending on 29th October, 2003 exceeded the Retail Price Index by more than the requisite 9%. 123,000 shares, together with the corresponding matching shares, were released to participants on 4th December, 2003.
† An analysis of Directors’ interests is contained in the remuneration report on pages 23 to 27.
22. Reserves Share Revaluation Other Profit and premium reserve reserves loss account Group £m £m £m £m At 1st January, 2003 138.0 0.6 6.8 133.6 Profit retained for the year –––11.5 Purchase of own shares for cancellation ––0.9 (9.6) Currency adjustments –––(0.7) Shares issued 2.5 – – 2.1 At 31st December, 2003 140.5 0.6 7.6 136.9
Share Other Profit and premium reserves loss account Company £m £m £m At 1st January, 2003 138.0 156.0 59.0 Loss retained for the year –– (1.3) Purchase of own shares for cancellation – 0.9 (9.6) Shares issued 2.5 – 2.1 At 31st December, 2003 140.5 156.9 50.2 During the year the Group credited the profit and loss reserve with £2.1m relating to the Restricted Share Plan. Other reserves include a non-distributable Capital Redemption Reserve Fund established in respect of the nominal value of shares repurchased. Cumulative goodwill arising on the acquisition of subsidiary undertakings prior to 1st January, 1998 (see page 38) of £6.6m (2002: £6.6m) remains written off to reserves. 735427 pp52-pp55 6/4/04 1:11 pm Page 52
Alfred McAlpine plc | Annual Report & Accounts 2003 52 Notes to the accounts | continued
23. Financial Instruments It is the Group’s objective to minimise exposure to interest rate, currency and liquidity risk through the use of primary and derivative financial instruments. During the year the Group has addressed these risks principally through the use of primary financial instruments. Formal procedures are in place to cover banking and other treasury matters. The Group’s policy is not to speculate or trade in financial instruments. Short-term debtors and creditors Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures. Fair values The following table provides a comparison by category of the carrying amounts and the fair values of the Group’s financial assets and financial liabilities at 31st December, 2003. Where available, market values have been used to determine fair values. Where market values are not available, fair values have been calculated by discounting expected cash flows at prevailing interest and exchange rates. Set out below the table is a summary of the methods and assumptions used for each category of financial instrument. Book value Fair value Book value Fair value 2003 2003 2002 2002 £m £m £m £m Primary financial instruments held or issued to finance the Group’s operations: Short-term borrowings (5.9) (5.9) (0.8) (0.8) Long-term borrowings ––(4.1) (4.1) Preference shares (4.5) (6.2) (4.5) (6.2) Finance leases (4.6) (4.6) (3.6) (3.6) Other financial liabilities (2.4) (2.3) (1.9) (1.4) (17.4) (19.0) (14.9) (16.1) Short-term deposits 55.2 55.2 103.3 103.3 Cash at bank and in hand 17.3 17.3 19.3 19.3 Other financial assets 15.3 15.3 14.4 14.4 70.4 68.8 122.1 120.9
Summary of methods and assumptions The fair value of the Group’s bank loans approximates to the carrying value reported in the balance sheet as the loans are floating, with payments reset to market rates at intervals of less than one year. The Company’s preference shares are listed on the London Stock Exchange and their fair value is based on their quoted market price at 31st December, 2003. The fair value of short-term deposits, cash and overdrafts approximates to the carrying amount because of the short maturity of these instruments. The fair value of other financial assets approximates to the carrying amount because of the ongoing trading nature of these items and the effect of increasing expected recovery off-setting the effect of discounting. Other financial assets include shared equity debtors of £4.9m (2002: £5.6m), long-term debtors of £5.4m (2002: £5.2m) and loans to Joint Ventures of £5.0m (2002: £3.7m). The fair value of other financial liabilities reflects the discounting of the liabilities. Other financial liabilities include the provisions for vacant leasehold properties of £1.0m (2002: £1.6m), and long-term creditors of £1.4m (2002: £0.3m).
Profile of financial assets Cash at Short Other Cash at Short Other bank and term financial bank and term financial Totalin hand deposits assets Total in hand deposits assets 2003 2003 2003 2003 2002 2002 2002 2002 Currency £m £m £m £m £m £m £m £m Sterling 86.1 15.6 55.2 15.3 135.3 17.6 103.3 14.4 US dollars 0.7 0.7 – – 0.9 0.9 – – EU currencies 1.0 1.0 – – 0.8 0.8 – – At 31st December 87.8 17.3 55.2 15.3 137.0 19.3 103.3 14.4
Floating rate 32.6 17.3 – 15.3 33.7 19.3 – 14.4 Fixed rate 55.2 – 55.2 – 103.3 – 103.3 – At 31st December 87.8 17.3 55.2 15.3 137.0 19.3 103.3 14.4 The fixed rate short-term deposits in sterling are placed with banks on a one-month rolling basis and earn interest at between 3.5% and 4.0% per annum. Floating rate cash earns interest based on relevant national LIBOR equivalents. 735427 pp52-pp55 6/4/04 1:11 pm Page 53
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 53
23. Financial Instruments continued Interest rate profile of financial liabilities Financial Financial Floating Fixed liabilities Floating Fixed liabilities rate rate on which rate rate on which financial financial no interest financial financial no interest Total liabilities liabilities is paid Total liabilities liabilities is paid 2003 2003 2003 2003 2002 2002 2002 2002 Sterling liabilities £m £m £m £m £m £m £m £m Financial liabilities 12.9 6.9 4.6 1.4 10.4 6.4 3.6 0.4 Preference shares 4.5 – 4.5 – 4.5 – 4.5 – At 31st December 17.4 6.9 9.1 1.4 14.9 6.4 8.1 0.4 All the Group’s creditors falling due within one year (other than bank and other borrowings) are excluded from the above tables either due to the exclusion of short-term items or because they do not meet the definition of a financial liability. In addition to the above, the Group’s provisions of £1.0m for vacant leasehold properties (note 19) meet the definition of financial liabilities. These financial liabilities are considered to be floating rate financial liabilities as, in establishing the provisions, the cash flows have been discounted and the discount rate is re-appraised at each half-yearly reporting date to ensure that it reflects current market assessments of the time value of money and the risks specific to the liability. The weighted average interest rate for fixed rate liabilities is 6.0%, fixed for a weighted average period of three years. The Company’s fixed rate 9% cumulative preference shares have no redemption date. Floating rate financial liabilities bear interest at rates, based on relevant LIBOR equivalents, which are fixed in advance for periods up to three months. The weighted average period until maturity of financial liabilities on which no interest is paid is 1.5 years.
Maturity of financial liabilities Other Other Finance financial Finance financial Total Debt leases liabilities Total Debt leases liabilities 2003 2003 2003 2003 2002 2002 2002 2002 £m £m £m £m £m £m £m £m Within 1 year, or on demand 8.5 5.9 2.0 0.6 2.6 0.8 1.2 0.6 Between 1 and 2 years 3.8 – 2.2 1.7 2.4 – 1.7 0.7 Between 2 and 5 years 1.2 – 0.9 0.2 5.8 4.1 1.1 0.6 Over five years 4.6 4.5 – 0.1 4.7 4.5 – 0.2
18.1 10.4 5.1 2.6 15.5 9.4 4.0 2.1
Finance charges allocated to future periods (0.7) – (0.5) (0.2) (0.6) – (0.4) (0.2) At 31st December 17.4 10.4 4.6 2.4 14.9 9.4 3.6 1.9 Debt due after five years includes £4.5m (2002: £4.5m) in respect of the Company’s preference shares. The undrawn elements of the Group’s committed borrowing facilities at 31st December, 2003 total £105m. These facilities expire in November 2007 and incur commitment fees at fixed contractual rates. Currency exposures There are no significant external monetary assets and liabilities held by Group companies in currencies other than their local currency. Hedges There are no significant off balance sheet hedges as at 31st December, 2003.
24. Reconciliation of Operating Profits to Net Cashflow from Operating Activities 2003 2002 £m £m Group operating profit after goodwill amortisation 24.1 19.4 Depreciation 8.4 7.1 Profit on disposal of tangible fixed assets (2.6) (0.5) Goodwill amortisation 5.6 6.2 (Increase)/decrease in stocks (1.9) 8.0 (Increase)/decrease in debtors (39.6) 3.9 Increase/(decrease) in creditors 5.4 (17.4) Decrease in other provisions (0.9) (0.1) Net cash flow from operating activities (1.5) 26.6 735427 pp52-pp55 6/4/04 1:11 pm Page 54
Alfred McAlpine plc | Annual Report & Accounts 2003 54 Notes to the accounts | continued
25. Analysis of Group Net Cash Acquisitions (excluding Other At cash and Cash non-cash At 01/01/03 overdrafts) flow changes 31/12/03 £m £m £m £m £m Cash at bank and in hand 19.3 – (2.0) – 17.3 Overdrafts (0.7) – (4.9) – (5.6)
18.6 – (6.9) – 11.7
Bank loans (3.1) (5.9) 5.9 3.1 – Loan notes (1.0) – 0.7 – (0.3) Finance leases (3.7) – 1.2 (2.1) (4.6)
(7.8) (5.9) 7.8 1.0 (4.9)
Bank term deposits 103.3 – (48.1) – 55.2
Net cash 114.1 (5.9) (47.2) 1.0 62.0
26. Acquisitions a) Acquisition of AIMS Group Services Limited On 6th June, 2003 the Group acquired AIMS Group Services Limited for a consideration of £9.0m including acquisition costs of £0.6m. The consideration comprised £7.7m in cash and £1.3m in shares in Alfred McAlpine plc. In addition, net debt of £6.0m was acquired. The acquisition has been accounted for using the acquisition method of accounting. Goodwill arising on the acquisition is being amortised over a period of 20 years. From the date of acquisition to 31st December, 2003, AIMS contributed £7.4m to turnover and £1.3m to operating profit and profit before tax. In its last financial year to 31st March, 2003, AIMS made a profit before tax and amortisation of £1.1m. The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to the Group. Fair value Net assets Fair value to the acquired adjustments Group £m £m £m Intangible assets 6.8 (6.8) – Tangible assets 0.5 – 0.5 Stock 0.2 – 0.2 Debtors 3.1 – 3.1 Creditors (2.0) (0.4) (2.4) Net borrowings (6.0) – (6.0) Net assets acquired 2.6 (7.2) (4.6) Goodwill 13.6 Consideration 9.0
Consideration satisfied by: Shares issued (507,324 ordinary shares at a market value of 249.5p) 1.3 Cash 7.7 9.0 The fair value adjustments are to write off unamortised purchased goodwill from previous acquisitions and unamortised finance issue costs. The fair valuation of net liabilities acquired is provisional and ongoing and will be finalised in the 2004 financial statements. b) Goodwill on acquisition of Stiell Limited On 1st March, 2002 the Group acquired Stiell Limited for £78.3m excluding net debt acquired of £4.9m. At the time of the acquisition an earn-out arrangement was established, the net impact of which has now been estimated at £4.5m. Total consideration for the Stiell Group is therefore adjusted to £82.8m, excluding the net debt acquired. Goodwill acquired on acquisition has been increased to £73.9m (2002: £69.4m). 735427 pp52-pp55 6/4/04 1:11 pm Page 55
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 55
26. Acquisitions continued c) Goodwill on acquisition of Eastern Contracting Holdings BV On 10th September, 2002, the Group acquired Eastern Contracting Holdings BV, the parent company of Eastern Contracting Limited for £10.6m in cash excluding net debt acquired of £2.9m. Further fair value adjustments totalling £1.1m relating primarily to lease obligations and debtors in the acquired balance sheet have been identified in the hindsight period. The net effect is to increase goodwill acquired by £1.1m to £18.8m.
Provisional Final fair fair value to Revision to value to the Group fair values the Group 2002 2003 2003 £m £m £m
Tangible assets 1.7 – 1.7 Stock 0.5 – 0.5 Debtors 8.7 (0.3) 8.4 Creditors (15.7) (0.8) (16.5) Provisions 0.5 – 0.5 Net borrowings (2.8) – (2.8) (7.1) (1.1) (8.2) Consideration 10.6 – 10.6 Goodwill recognised 17.7 1.1 18.8
d) Acquisition of UK Power Construction Limited On 6th February, 2004, the Group acquired UK Power Construction Limited for £5.2m in cash.
27. Parent Company As permitted by Section 230(1) of the Companies Act 1985, the profit and loss account of the Company is not presented as part of the accounts. The parent company profit after tax of £10.5m (2002: £53.3m) is included in the Group profit for the financial year. The reconciliation of movements in shareholders’ funds is as follows:
2003 2002 £m £m
Profit for the financial year 10.0 54.3 Dividends (11.3) (10.8)
(1.3) 43.5 Gain on the revaluation of subsidiaries – 9.5 New shares issued 2.8 0.8 Premium on new share capital issued 2.5 12.0 Purchase of own shares for cancellation (9.6) (23.4)
Net (decrease)/increase to shareholders’ funds (5.6) 42.4 Opening shareholders’ funds 383.3 340.9
Closing shareholders’ funds 377.7 383.3
28. Related Party Transactions During the year the Group entered into the following material transactions with related parties:
Transactions amounting to £33.7m (2002: £29.6m) have been made with joint ventures and associates for provision of labour at cost, plant at normal commercial rates, recharge of costs incurred and management fees. The Group owed net balances totalling £2.2m (2002: £16.2m owing to the Group) to these joint ventures and associates at the year end. There were no amounts written off in respect of such balances (2002: £nil). In each case, a senior representative of the Alfred McAlpine Group sits on the Board of the joint venture body. 735427 pp56-pp58 6/4/04 1:12 pm Page 56
Alfred McAlpine plc | Annual Report & Accounts 2003 56 Notes to the accounts | continued
29. Pension Costs Defined contribution schemes The Group operates six main defined contribution pension schemes in the UK. All provide benefits based upon the individual funds available, at retirement, for the purchase of an annuity.
On 1st August, 2003, the Company introduced the McAlpine 2003 Pension Plan (‘the 2003 Pension Plan’), which is a contracted-in defined contribution pension arrangement. The 2003 Pension Plan is operated on behalf of the Company by Eagle Star and is subject to the Stakeholder Pensions regulations. The minimum employee contribution is 3% of basic salary. Employees may elect to pay additional contributions, some of which will be matched by the Company, depending on the grade of the employee. The average Company contribution equates to 5.3% of basic salary. In aggregate, employer contributions were £1.79m in 2003.
The Alfred McAlpine Utility Services Group Limited Retirement Benefits Scheme received employer contributions in 2003 of £63,027 (2002: £95,599 part year). The Alfred McAlpine Utility Services Group Limited Group Personal Pension Plan received employer contributions in 2003 of £464,388 (2002: £315,255).
The Stiell Retirement Savings Scheme received employer contributions in 2003 of £277,618 (2002: £366,974). The Stiell Limited Group Personal Pension Plan received employer contributions in 2003 of £142,267 (2002: £119,939).
The Eastern Contracting Limited Group Personal Pension Plan, which was discontinued at 30th November, 2003, received employer contributions in 2003 of £8,942 (2002: £12,045).
Defined benefit schemes The Group operates a defined benefit pension plan and participates in the Electricity Supply Pension Scheme (‘the ESPS’) in the UK. Both the Alfred McAlpine Pension Plan (‘the Plan’) and the ESPS provide benefits based on final pensionable salary for eligible employees. The assets are held separately from those of the Group and are managed on the Trustees’ behalf by investment managers. Both are funded by contributions from the employer and investment returns. The rates of contribution are determined by independent qualified actuaries. Employees who are members of the ESPS also pay a contribution.
The Plan With effect from 31st July, 2003, the Plan was closed for future benefit accrual. Members as at that date continue to retain the link to pensionable salary at their eventual date of leaving in respect of service up to 31st July, 2003. Employee contributions into the Plan ceased with effect from 1st August, 2003.
The most recent full valuation of the Plan was at 31st December, 2002 and incorporates the assumption that investment returns will be 2.05% per annum greater than the rate of future salary increases to normal retirement date or earlier death or withdrawal from the Plan and 2.8% greater than the rate of increase in present and future pensions.
The actuary reported that the market value of the Plan’s assets at 31st December, 2002 was £189.7m (1999: £236.8m) which was sufficient to cover 71% of the benefits that had accrued to members, allowing for future salary projections.
Employer contributions made to the Plan in 2003 were £5.2m (2002: £4.5m) and the charge to the profit and loss account in the year to 31st December, 2003 totalled £4.3m (2002: £4.5m). The prepayment of £32.3m remains unchanged. From 1st January, 2004, the Group will make an inflation-linked contribution to the Pension Plan of £3.85m per annum.
The ESPS The most recent full valuation of the ESPS was at 31st March, 2001 and incorporates the assumption that investment returns will be 2.5% per annum greater than the rate of future salary increases to normal retirement date or earlier death or withdrawal from the ESPS.
The actuary reported that the smoothed market value of the Alfred McAlpine Group of the ESPS’ assets at 31st March, 2001 was £37.3m, which was sufficient to cover 124% of the benefits that had accrued to members. Employer contributions made to the ESPS in 2003 were £938,962 (2002: £238,901 part year).
Application of FRS 17 The following information is given under the transitional provisions of FRS 17, which prescribes a method of valuation, for accounting purposes, that differs widely from both the full actuarial valuation and the methodology as prescribed by regulation of the minimum funding requirement.
FRS 17 gives the present value of pension liabilities by discounting pension commitments, including salary growth, at an AA corporate bond yield and includes assets at the market value at that date. The FRS 17 value of total liabilities under the Plan and the ESPS at 31st December, 2003 estimated by qualified independent actuaries was £330.7m (2002: £294.4m) and the snapshot market value of assets was £24.78m (2002: £222.4m), giving a deficit as at that specific date of £58.0m (2002: £50.4m) after the related deferred tax asset. 735427 pp56-pp58 6/4/04 1:12 pm Page 57
Alfred McAlpine plc | Annual Report & Accounts 2003 Notes to the accounts | continued 57
29. Pension Costs continued In calculating the liabilities the following assumptions have been used:
At At At At 31/12/03 31/12/03 31/12/02 31/12/02 ESPS The Plan ESPS The Plan %pa %pa %pa %pa Discount rate 5.4 5.8 5.5 5.6 Salary growth 4.3 3.8 3.8 3.3 RPI 2.8 2.8 2.3 2.3 Increases to pensions in payment 2.9 2.8 2.5 2.3
Deferred pensions are revalued to retirement age in line with the RPI assumptions unless otherwise prescribed by statutory requirements or the rules of the Plan and ESPS.
The assets in the Plan and ESPS by proportion, and the expected rates of return were:
ESPS The Plan ESPS The Plan
Long-term Long-term Long-term Long-term rate of return rate of return rate of return rate of return expected at Value at expected at Value at expected at Value at expected at Value at 31/12/03 31/12/03 31/12/03 31/12/03 31/12/02 31/12/02 31/12/02 31/12/02 % £m % £m %£m%£m
Equities 7.9 28.9 6.9 141.5 7.6 24.4 7.0 106.7 Corporate bonds 5.3 3.6 5.4 40.1 5.0 3.6 5.5 31.4 Cash and gilts 4.8 5.4 4.4 28.3 4.5 3.2 4.5 53.1
Total market value of assets 37.9 209.9 31.2 191.2 Present value of scheme liabilities (55.1) (275.6) (39.3) (255.1)
Deficit in the scheme (17.2) (65.7) (8.1) (63.9) Related deferred tax asset 5.2 19.7 2.4 19.2
Net pension shortfall (12.0) (46.0) (5.7) (44.7)
If the aggregate of the above amounts had been recognised in the financial statements, the Group’s net assets and profit and loss reserve at 31st December, 2003 would be as follows:
2003 2002 Group Group £m £m
Net assets per balance sheet 314.5 309.3 Remove net SSAP 24 pension asset and its associated deferred tax (18.1) (19.9) Include FRS 17 pension liability and its associated deferred tax – the Plan (46.0) (44.7) – ESPS (12.0) (5.7)
Net assets including FRS 17 pension shortfall 238.4 239.0
2003 2002 Group Group £m £m
Profit and loss reserve per balance sheet 135.8 133.6 Remove net SSAP 24 pension asset and its associated deferred tax (18.1) (19.9) Include FRS 17 pension liability and its associated deferred tax – the Plan (46.0) (44.7) – ESPS (12.0) (5.7)
Profit and loss reserve including FRS 17 pension shortfall 59.7 63.3 735427 pp56-pp58 6/4/04 1:12 pm Page 58
Alfred McAlpine plc | Annual Report & Accounts 2003 58 Notes to the accounts | continued
29. Pension Costs continued Analysis of the amount that would have been charged to operating profit 2003 2002 £m £m
Current service cost 3.9 4.9 Past service cost – – Curtailment cost 0.7 –
Total operating charge 4.6 4.9
Analysis of the amount that would have been charged to other finance income 2003 2002 £m £m
Expected return on pension scheme assets 12.9 15.2 Interest on pension scheme liabilities (16.2) (15.3)
Net return (3.3) (0.1)
Analysis of the amount that would have been recognised in statement of total recognised gains and losses (STRGL) 2003 2002 £m £m
Actual return on assets 29.6 (25.0) Less expected return on assets (12.9) (15.2)
16.7 (40.2) Experience gains and losses on liabilities (10.6) 12.7 Changes in assumptions (16.3) (10.6)
Actuarial loss recognised in STRGL (10.2) (38.1)
Movement in deficit during the year 2003 2002 £m £m
Deficit at beginning of year (72.0) (25.0) Movements in year: FRS 17 deficit on schemes acquired – (8.4) Current service cost (3.9) (4.9) Curtailment cost (0.7) – Contributions 7.2 4.5 Other finance charge (3.3) (0.1) Actuarial loss (10.2) (38.1)
Deficit at end of year (82.9) (72.0)
History of experience gains and losses 2003 2002 £m £m
Difference between the experience and actual return on scheme assets 16.7 (40.2) Percentage of scheme assets 7% (18%) Experience gains and losses on scheme liabilities (10.7) 12.7 Percentage of scheme liabilities 3% (4%) Total amount recognised in statement of total recognised gains and losses (10.3) (38.1) Percentage of scheme liabilities 3% 13%
30. Contingent Liabilities There are contingent liabilities in respect of: a) completed and uncompleted contracts of the Group, its related undertakings and joint ventures; and b) legal or potential claims, the outcome of which cannot at present be foreseen. Appropriate provision has been made in these accounts for all liabilities that are, in the opinion of the Directors, likely to materialise. 735427 pp59-pp61 6/4/04 1:13 pm Page 59
Alfred McAlpine plc | Annual Report & Accounts 2003 Principal subsidiary undertakings 59
Principal subsidiary undertakings, joint ventures and associates
All undertakings are incorporated in the UK, unless otherwise indicated, and operate mainly in the country of incorporation. The Group’s interest is in equity share capital in all cases and is stated as at 31st December, 2003.
Subsidiary undertaking Principal activity Interest %
Business Services McAlpine Asset Management Limited Provision of plant and site accommodation services 100 McAlpine Business Services Limited Facilities management and support services 100 McAlpine Business Information Systems Limited IT support services 100
Capital Projects Alfred McAlpine Capital Projects Holdings Limited# Holding company 100 McAlpine Capital Projects Limited Construction services 100
Infrastructure Services McAlpine Infrastructure Services Limited Utility infrastructure services 100 McAlpine Government Services Limited Highway maintenance services 100
Project Investments McAlpine Project Investments Limited PFI project appraisal and management 100
Slate Alfred McAlpine Slate Limited Slate quarrying and marketing 100 Hilltop Slate Inc* Slate quarrying 100
Joint ventures and associates Principal activity Share capital Interest %
Mercia Healthcare (Holdings) Limited Hospital development £1,000 25 Road Management Group Limited Holding company £25,335,000 25 South Manchester Healthcare (Holdings) Limited Hospital development £1,000 25 Core Utility Solutions Limited** Multi-utility connection specialists £1,000,000 49 East Leake Schools (Holdings) Limited School development £10,000 50 Stirling Water (2003) Limited Water infrastructure £10,000 25
# Owned directly by Alfred McAlpine plc. * Incorporated and operating in the US. ** A put and call option exists under which Alfred McAlpine may acquire the remaining 51% of Core Utility Solutions Limited from Scottish Power plc.
Five year summary
2003 2002 2001* 2000 1999 £m £m £m £m £m
Turnover 868.5 768.3 859.7 839.5 790.9 Profit before taxation, exceptional items and goodwill 36.2 30.2 42.3 60.6 46.9
Exceptional items – (2.3) 20.8 – – Goodwill (5.6) (6.2) (19.2) (0.4) (0.4) Profit before taxation 30.6 21.7 43.9 60.2 46.5 Earnings per share Adjusted – before goodwill and exceptional items 28.6p 20.7p 29.9p 42.6p 32.4p Basic 22.3p 13.3p 36.8p 42.2p 32.1p Dividend per share 11.0p 10.0p 10.0p 10.0p 8.8p
* The Group sold its Homes business on 1st October, 2001 for £463m. 735427 pp59-pp61 6/4/04 1:13 pm Page 60
Alfred McAlpine plc | Annual Report & Accounts 2003 60 Shareholder information
Shareholder information
Financial Calendar Shareholders’ Enquiries Enquiries relating to matters such as loss of a share certificate, dividend payments or notification of a change of name or address should be 11th March, 2004 Results announcement for year directed to the Company’s registrars, Lloyds TSB Registrars, The to 31st December, 2003 Causeway, Worthing, West Sussex BN99 6DA. 5th May, 2004 Ex-dividend date Telephone: 0870 600 3970. 7th May, 2004 Record date Telephone for shareholders with hearing difficulties: 0870 600 3950. 20th May, 2004 Annual General Meeting Lloyds TSB Registrars also provide a website which enables you to view 28th May, 2004 Final dividend payment date up-to-date information about your shareholding in the Company: 29th July, 2004 Interim results announcement www.shareview.co.uk mid August, 2004 Interim report published As part of our commitment to shareholders, we are able to send you literature in the following formats: large print Analysis of Holders of Ordinary Shares at 31st December, 2003 braille Number of % of Number of % of audio tape shareholders shareholders shares shares If you would like to receive shareholder communications in alternative Range of holdings formats, please register your name, address, shareholder account 1– 1,000 3,801 59.90 1,464,997 1.43 number and preferred format with Lloyds TSB Registrars, as above. 1,001 – 10,000 2,119 33.40 6,151,658 6.00 10,001 – 50,000 239 3.77 5,681,324 5.54 Amalgamation of Shareholdings 50,001 – 100,000 57 0.90 4,457,145 4.34 If you received more than one copy of this annual report, there may over 100,000 129 2.03 84,800,031 82.69 be more than one account in your name on the Company’s register of Total 6,345 100.00 102,555,155 100.00 members. If you would like to amalgamate your holdings, please write to the Company’s registrars.
Types of shareholders Share Price Information Private shareholders 4,973 78.38 13,046,725 12.72 Share price information on Alfred McAlpine plc can be found on page Insurance companies 3 0.05 1,287,957 1.26 222 of Ceefax or by calling FT Cityline on 0906 843 3316. Calls are Pension funds 2 0.03 1,501 0.00 charged at 60p per minute (plus VAT), at all times. Nominee companies 1,220 19.23 83,203,404 81.13 Limited companies 124 1.95 3,713,702 3.62 Share Dealing Service Banks and bank nominees 2 0.03 433,822 0.42 The Company operates a low-cost share dealing service, through Other institutions 21 0.33 868,044 0.85 Cazenove & Co Ltd. Details of the service, and sale and purchase forms, Total 6,345 100.00 102,555,155 100.00 may be obtained by calling 020 7155 5155.
ShareGift The Orr Mackintosh Foundation operates a charity share donation scheme (ShareGift) for shareholders with small holdings of shares whose value makes it uneconomic to sell them. Details of the scheme can be obtained from the Company’s registrars. Information is also available on the ShareGift website: www.sharegift.org
Registered and Group Head Office Kinnaird House 1 Pall Mall East London SW1Y 5AZ Website: www.mcalpineplc.com