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We Work for You We work for you Annual Report and Accounts 2012 Overview | Performance Highlights and Financial Summary Performance Highlights Pre-tax profit1 Underlying earnings per share1 Dividends per share − 7% −1% +2% 2012 £310m 2012 35.0p 2012 14.1p 2011 £334m 2011 35.5p 2011 13.8p 2010 £306m 2010 32.7p 2010 12.7p Financial Summary (£m unless otherwise specified) 2012 2011 Change (%) Revenue including joint ventures and associates 10,896 11,035 (1) Group revenue 9,483 9,494 – Profit from continuing operations – underlying1 309 331 (7) – reported 74 243 (70) Pre-tax profit from continuing operations – underlying1 310 334 (7) – reported 75 246 (70) Earnings per share from continuing operations – underlying1 35.0p 35.5p (1) – basic 6.5p 26.7p (76) Dividends per share 14.1p 13.8p 2 Financing – net cash before PPP subsidiaries (non-recourse) 35 340 – net borrowings of PPP subsidiaries (non-recourse) (368) (332) 1 From continuing operations, before non-underlying items. Balfour Beatty differentiates itself through strong local businesses, global sector expertise and end-to-end capabilities including the ability to develop and finance. Ian Tyler Chief Executive Go online to watch our film www.balfourbeatty.com/ AR2012 We work Day in, day out around the world, Balfour Beatty teams are working with their clients and partners to fund, design, Overview deliver, operate and maintain infrastructure efficiently and safely. For you For everyone. Our business is creating the infrastructure assets that help communities, society and nations to live, thrive and grow. For the future We are focused on geographical regions and key market sectors that will enable us to prosper today and grow sustainably for years to come. Contents Overview Our Accounts IFC Performance Highlights 98 Independent Auditor’s Report IFC Financial Summary 99 Financial Statements 02 Group at a Glance 104 Notes to the Financial Statements 04 Chairman’s Welcome Shareholder Information 163 Group Five-Year Summary Our Business 164 Shareholder Information 06 Chief Executive’s Review 10 Market Overview Case Studies 12 Our Strategy 08 We hang overhead lines 16 Strategic Imperatives You hang ten 24 Business Model 14 We hit the ground running 28 Operating Review You get off to a flying start 28 Professional Services 26 We worked together to 32 Construction Services deliver on schedule 37 Support Services You get your perfect delivery 41 Infrastructure Investments on a welcoming ward 44 Directors’ Valuation of 46 We catch more nutrients PPP Concessions You catch more fish www.balfourbeatty.com/ 48 The Way We Work 52 We share knowledge AR2012 54 Chief Financial Officer’s Review You share power 58 Managing Risk Key to further content: Our Governance Read more on p00 62 Chairman’s Statement 64 Board of Directors Read more online 66 Directors’ Report 82 Remuneration Report Watch film online Balfour Beatty Annual Report and Accounts 2012 01 Overview | Group at a Glance Group at a Glance We draw on our global knowledge, Professional across the infrastructure lifecycle Services to develop innovative assets to Our Professional Services business create and support tomorrow’s is a global player in design, planning and programme management and communities, today. a market leader in transportation and power. Balfour Beatty is a global infrastructure group that delivers world class services essential to the development, creation and care of infrastructure assets; from finance and development, through design and project management to construction and maintenance. Our businesses draw on more than 100 years of experience to deliver the highest levels of quality, safety and technical expertise to our clients principally in the UK, the US, Southeast Asia, and the Middle East. We continue to develop our business in key growth markets in South Africa, Australia, Canada, Brazil and India. With proven expertise in delivering infrastructure critical to support communities and society today and in the future, our key market sectors include transportation (roads, rail and aviation), power and energy, mining, water and social infrastructure such as hospitals and schools. What do we do • Programme and project management • Construction management • Project design • Technical services • Planning £11trn • Consultancy Estimated value of global infrastructure market in 2013–20173 Key highlights • Increased transportation market share in Americas £11bn • Significant highways wins Revenue2 generated this year in US following approval of Transportation Bill • Acquisition of Subsurface Group to expand energy storage capability 80+ • Highways, rail and power transmission contract wins involving Presence in over 80 countries other Group businesses totalling £2 billion. 50,000 Employees worldwide £1.6bn Order book £1,668m Revenue2 £98m Profit from operations1 1 Before non-underlying items. 2 Including joint ventures and associates. 3 Global Insight. 02 Balfour Beatty Annual Report and Accounts 2012 Overview | Group at a Glance Overview Construction Support Infrastructure Services Services Investments We manage market leading Our Support Services business is A leader in UK and US PPP, our construction businesses in the focused on infrastructure and well Infrastructure Investments business UK, the US, Hong Kong and the established as a provider of facilities has a strong track record of Middle East. management, business services developing and financing projects outsourcing, utility infrastructure, over the last 15 years. and rail renewals and highways management. What do we do What do we do What do we do • Civil and ground engineering • Upgrade and maintain water, • Operate a UK portfolio of PPP • Rail engineering gas and electricity networks concessions, mainly in education, • Building • Total facilities management, health, roads/street lighting, • Refurbishment and fit-out business services outsourcing renewables and student • Mechanical and electrical services and energy services accommodation • Highways network management, • Operate a US portfolio of operation and maintenance military housing and student • Rail renewals accommodation PPP concessions Key highlights Key highlights Key highlights • UK and US organisations • Continued growth across the • Leveraged US military housing streamlined and restructured majority of market segments experience to establish a student • US business recognised as a • Won new gas distribution contracts accommodation portfolio in the national leader in sustainable worth £1.1 billion in the UK and US and UK construction, with “green” started work on first contract • Made significant progress in sales of over US$2 billion in Ireland UK waste and energy projects • Major wins for Hong Kong business, • Further increase in share of UK • Successfully disposed of two including biggest solo contract. highways maintenance market assets, achieving £84 million of • Major wins for local authority unit proceeds and £52 million of profit • Facilities management unit • Completed first round of fundraising appointed to run services for for managed investment fund. the Olympic Park. £8.0bn £5.7bn £734m Order book Order book Directors’ valuation £6,959m £1,633m £636m Revenue2 Revenue2 Revenue2 £122m £52m £97m Profit from operations1 Profit from operations1 Pre-tax result1 Balfour Beatty Annual Report and Accounts 2012 03 Overview | Chairman’s Welcome Chairman’s Welcome Balfour Beatty’s success is very much dependent on its people, and never more so than in challenging times. We closed the year reporting Against this challenging economic revenue, including joint ventures background, our Professional Services and Infrastructure Investments businesses and associates, of £10,896 demonstrated resilience and strength. million, down 1%, and profit Throughout the year, we maintained our from underlying operations relentless focus on operational efficiency. of £309 million, down 7%. We have made progress in restructuring We retain a strong balance sheet both the UK and US construction businesses, which helped to offset with a neutral cash position, some of the impact of volume and despite working capital margin pressure. We have concluded impacts reflecting reduced an operational and strategic review of our Mainland European rail business and will volume and changing mix be divesting all of this business over time. in Construction Services. As you will read later in this report, in Our UK and US construction businesses the near term we are addressing current were held back by tough economic market conditions by seeking additional conditions in 2012. But as a Group we efficiencies while continuing to focus on were able to mitigate the impact through customer value. We expect this focus will our diverse portfolio, ongoing operational also address some of the operational efficiency and focus on new growth issues we have experienced in certain geographies and market sectors. areas of the business. For mid to long term growth we are also stepping up Tough trading conditions persisted in implementation of our strategy to target most of our major construction markets, growth geographies and market sectors. particularly in the second half of the year. You can read more about this on pages US construction markets remained 10 and 11. depressed, the performance of our UK construction business was weaker than Board anticipated and structural problems in We have made a number of boardroom Mainland European rail markets added changes over the past year. We to the challenges. announced in January 2013 that our Chief Executive, Ian
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